Question

Suppose you manage a $4.555 million fund that consists of four stocks with the following investments:

Stock	Investment		Beta
A	$480,000		1.50
B	325,000		-0.50
C	1,100,000		1.25
D	2,650,000		0.75

If the market's required rate of return is 13% and the risk-free rate is 4%, what is the fund's required rate of return? Do not round intermediate calculations. Round your answer to two decimal places.

Answer 1

Portfolio beta=Respective beta*Respective investment weight

=(480,000/4,555,000*1.5)+(325000/4,555,000*-0.5)+(1,100,000/4,555,000*1.25)+(2,650,000/4,555,000*0.75)

=0.860592755

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

=4+0.860592755*(13-4)

which is equal to

=11.75%(Approx).