Question

Consider the following information and then calculate the required rate of return for the Global Investment Fund, which holds 4 stocks. The market’s required rate of return is 13.25%, the risk-free rate is 7.00%, and the Fund’s assets are as follows:(hint: market beta =1.0) Stock Investment Beta A $ 200,000 1.50 B 300,000 −0.50 C 500,000 1.25 D $1,000,000 0.75

Answer 1

11.77%

Step-by-step explanation:

total investment = $200,000 + $300,000 + $500,000 + $1,000,000 = $2,000,000

stock weight beta total

A $200,000 / $2,000,000 1.5 0.15

B $300,000 / $2,000,000 -0.5 -0.075

C $500,000 / $2,000,000 1.25 0.3125

D $1,000,000 / $2,000,000 0.75 0.375

Portfolio 0.7625

required rate of return = Rf + beta(Rm - Rf) = 7% + 0.7625(13.25% - 7%) = 11.7656% = 11.77%