Suppose you are the money manager of a 448 million investmen

Suppose you are the money manager of a $4.48 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 6%, what is the fund\'s required rate of return? Round your answer to two decimal places.

Solution

Portfolio beta=Respective betas*Respective investment weights

=(240,000/4,480,000*1.5)+(760000/4,480,000*-0.5)+(1380000/4,480,000*1.25)+(2100000/4,480,000*0.75)

=0.732142857

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

=6+0.732142857*(12-6)

=10.39%(Approx).