Portfolio required return Suppose you are the money manager of a $4.53 million i

Question

Portfolio required return

Suppose you are the money manager of a $4.53 million investment fund. The fund consists of 4 stocks with the following investments and betas:

If the market's required rate of return is 9% 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 $   260,000                                 1.50 B 580,000                                 - 0.50 C 1,140,000                                 1.25 D 2,550,000                                 0.75

Explanation / Answer

As per the Capital Asset Pricing Model, the required rate of return = 7 + 0.7589 ( 9 - 7) = 8.5178%

Stock Investment Weights Beta Weighted Beta A $ 260,000 0.0574 1.50 0.0861 B 580,000 0.1280 -0.50 -0.064 C 1,140,000 0.2517 1.25 0.3146 D 2,550,000 0.5629 0.75 0.4222 $ 4,530,000 1.000 0.7589

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