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PORTFOLIO REQUIRED RETURN Suppose you are the money manager of a $4.78 million investment fund. The fund...

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PORTFOLIO REQUIRED RETURN

Suppose you are the money manager of a $4.78 million investmentfund. The fund consists of four stocks with the followinginvestments and betas:

StockInvestmentBeta
A$   500,000                                1.50
B420,000                                (0.50)
C1,460,000                                1.25
D2,400,000                                0.75

If the market's required rate of return is 10% and the risk-freerate is 6%, what is the fund's required rate of return? Do notround intermediate calculations. Round your answer to two decimalplaces.

Answer & Explanation Solved by verified expert
3.7 Ratings (336 Votes)

Ans 9.49%

Stock INVESTMENT (i) Beta (ii) Investment* Beta (i)* (ii)
A              5,00,000                     1.50                         7,50,000.00
B              4,20,000                   (0.50)                       (2,10,000.00)
C            14,60,000                     1.25                       18,25,000.00
C            24,00,000                     0.75                       18,00,000.00
Total            47,80,000                       41,65,000.00
AVERAGE BETA = (INVESTMENT * BETA) / TOTAL INVESMENT
4165000 / 4780000
0.871338912
Required Return = Risk free Return + (Market Return - Risk free return)* Beta
Required Return = 6% + (10% - 6%)*0.871338912
Required Return = 9.49%

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PORTFOLIO REQUIRED RETURNSuppose you are the money manager of a $4.78 million investmentfund. The fund consists of four stocks with the followinginvestments and betas:StockInvestmentBetaA$   500,000                                1.50B420,000                                (0.50)C1,460,000                                1.25D2,400,000                                0.75If the market's required rate of return is 10% and the risk-freerate is 6%, what is the fund's required rate of return? Do notround intermediate calculations. Round your answer to two decimalplaces.

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