#1 (permalink)  
Senior Member
Posts: 477

find the required rate of return?
Suppose you manage a $4 million fund that consists of four stocks with the following investments:
StockInvestmentBeta A $400,000 1.50 B 600,000 0.50 C 1,000,000 1.25 D 2,000,000 0.75 If the market’s required rate of return is 14% and the risk free rate is 6%, what is the fund’s required rate of return? 
#2 (permalink)  
Senior Member
Posts: 134

find the required rate of return?
The weighted avg beta of the portfolio is 
400,000 x 1.5 = 600,000 600,000 x (.50) = (300,000) 1,000,000 x 1.25 = 1,250,000 2,000,000 x .75 = 1,500,000 Total Investment 4,000,000 Total beta 3,050,000 Weghted Avg Beta = .7625 Required Rate = RF + Beta(Market risk premium) RR = 6% + .7625(14%  6%) = 6% + .7625(8%) = 6% + 6.1% = 12.1% 
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