Question

Portfolio required return

Suppose you are the money manager of a $4.98 million investment fund. The fund consists of four stocks with the following investments and betas:

Stock	Investment	Beta
A	$   460,000	1.50
B	580,000	- 0.50
C	940,000	1.25
D	3,000,000	0.75

If the market's required rate of return is 9% and the risk-free rate is 5%, what is the fund's required rate of return? Do not round intermediate calculations. Round your answer to two decimal places. (Thank you for your help!)

Answer 1

Portfolio beta=Respective beta*Respective investment weight

=(460,000/4,980,000*1.5)+(580,000/4,980,000*-0.5)+(940,000/4,980,000*1.25)+(3,000,000/4,980,000*0.75)

=0.768072289

required return=risk-free rate +Beta*(market rate- risk-free rate)

=5+0.768072289*(9-5)

=8.07%