Question

Suppose you are the money manager of a $4.12 million investment fund. The fund consists of four stocks with the following investments and betas: Stock Investment Beta A $   220,000                                 1.50 B 320,000                                 - 0.50 C 1,180,000                                 1.25 D 2,400,000                                 0.75 If the market's required rate of return is 10% and the risk-free rate is 7%, what is the fund's required rate of return? Do not round intermediate calculations. Round your answer to two decimal places. %

Answer 1

Ans 9.08%

Stock	Beta	Investment	Beta * Investment
A	1.50	220000	330000
B	-0.50	320000	-160000
C	1.25	118000	147500
D	0.75	2400000	1800000
	Total	3058000	2117500
Average Beta =	(Beta * Investment) / Total Investment
	2117500 / 3058000
	0.692446043
Required Return =	Risk free Return + (Market Return - Risk free return)* Beta
Required Return =	7% + (10% - 7%)*0.692446
Required Return =	9.08%