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Suppose you manage a $3.87 million fund that consists of four stocks wuth the following investments: Stock/Investment/Beta A...

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Finance

Suppose you manage a $3.87 million fund that consists of fourstocks wuth the following investments:
Stock/Investment/Beta
A $300000 1.50
B 300000 -0.50
C 1020000 1.25
D 2250000 0.75
If market's required rate if return is 12% and the risk freerate is 4%, What is the fund's required rate of return?

Answer & Explanation Solved by verified expert
4.2 Ratings (745 Votes)

Ans 10.74%

Stock INVESTMENT (i) Beta (ii) Investment* Beta (i)* (ii)
A              3,00,000                    1.50                         4,50,000.00
B              3,00,000                   (0.50)                       (1,50,000.00)
C            10,20,000                    1.25                      12,75,000.00
D            22,50,000                    0.75                      16,87,500.00
Total            38,70,000                      32,62,500.00
AVERAGE BETA = (INVESTMENT * BETA) / TOTAL INVESTMENT
3262500 / 3870000
0.843023256
Required Return = Risk free Return + (Market Return - Risk free return)* Beta
Required Return = 4% + (12% - 4%)*0.843023256
Required Return = 10.74%

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Transcribed Image Text

Suppose you manage a $3.87 million fund that consists of fourstocks wuth the following investments:Stock/Investment/BetaA $300000 1.50B 300000 -0.50C 1020000 1.25D 2250000 0.75If market's required rate if return is 12% and the risk freerate is 4%, What is the fund's required rate of return?

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