Problem 87 Portfolio required return Suppose you are the mon

Problem 8-7 Portfolio required return Suppose you are the money manager of a $4.52 million investment fund. The fund consists of 4 stocks with the following investments and betas: Stock Beta 1.50 -0.50 1.25 0.75 Investment $280,000 620,000 1,420,000 2,200,000 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.

Solution

beta of portfolio = 0.7821

required return = 7% + 0.7821*(12 - 7)% = 10.91%

	Amount	weight	cost	weight*beta
A	280.00	0.0619	1.5000	0.0929
B	620.00	0.1372	-0.5000	-0.0686
C	1,420.00	0.3142	1.2500	0.3927
D	2,200.00	0.4867	0.7500	0.3650