Problem 8.17: Portfolio Beta A mutual fund manager has a $20 million portfolio w
ID: 2613759 • Letter: P
Question
Problem 8.17: Portfolio Beta
A mutual fund manager has a $20 million portfolio with a beta of 0.75. The risk-free rate is 3.25%, and the market risk premium is 5.0%. The manager expects to receive an additional $5 million, which she plans to invest in a number of stocks. After investing the additional funds, she wants the fund's required return to be 20%. What should be the average beta of the new stocks added to the portfolio? Do not round intermediate calculations. Round your answer to two decimal places. Enter a negative answer with a minus sign.
Explanation / Answer
average beta of the new stocks added 8.95 Dear Student Thank you for using Chegg Please find below the answer Statementshowing Computations Paticulars Amount Weight Existing Portfolio 20,000,000.00 0.80 New Investment 5,000,000.00 0.20 25,000,000.00 1.00 Return of Existing portfolio = 3.25% + .75*5% 7% 20% = 13%*.80 + .20(3.25%+Beta*5%) 20% = 10.4% + .65% + Beta *1% 8.95% = 1% Beta Beta = 8.95