Portfolio required return Suppose you are the money manager of a $4.01 million i

Question

Portfolio required return

Suppose you are the money manager of a $4.01 million investment fund. The fund consists of 4 stocks with the following investments and betas:

If the market's required rate of return is 13% and the risk-free rate is 3%, what is the fund's required rate of return? Round your answer to two decimal places

Stock Investment Beta A $   300,000                                 1.50 B 640,000                                 - 0.50 C 1,020,000                                 1.25 D 2,050,000                                 0.75

Explanation / Answer

Stock Investment Beta (A) Weight (B) weighted Beta (AXB) A 300000 1.5 0.075 0.112 B 640000 -0.5 0.160 -0.080 C 1020000 1.25 0.254 0.318 D 2050000 0.75 0.511 0.383 Total 4010000 0.734 Formula of CAPM Required rate of Return= Rf + (Rm-Rf)*Bp 3%+(13%-3%)*0.734 10.34%

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