Portfolio required return Suppose you are the money manager of a $3.7 million in

Question

Portfolio required return

Suppose you are the money manager of a $3.7 million investment fund. The fund consists of 4 stocks with the following investments and betas:

If the market's required rate of return is 12% and the risk-free rate is 7%, what is the fund's required rate of return? Round your answer to two decimal places.
%

Stock Investment Beta A $   460,000                                 1.50 B 360,000                                 - 0.50 C 980,000                                 1.25 D 1,900,000                                 0.75

Explanation / Answer

Stock Investment Weight Beta Weighted Beta A              460,000.00                      0.12                    1.50                           0.19 B              360,000.00                      0.10                 (0.50)                        (0.05) C              980,000.00                      0.26                    1.25                           0.33 D           1,900,000.00                      0.51                    0.75                           0.39           3,700,000.00                      1.00                           0.85 Ke = Rf + B(Rm-Rf) ke = 7% + .85 (12%-7%) ke = 7% + 4.25% ke = 11.25%

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