3. (15 Percent) Assume that you are the portfolio manager of the YTT Fund, a $5 million hedge fund that contains the following stocks. The required rate of return on the market is 12.00% and the risk-free rate is 4.50%. Stock A B с D E Amount $850,000 $650,000 $1,500,000 $800,000 $1,200,000 $5,000,000 Beta 1.5 0.8 1.3 0.6 1.2 a. What rate of return should investors expect (and require) on this fund and what is the beta of this fund? b. The investors require you to reduce the risk of the fund and thus you plan to cut the investment in Stock C by $500,000 and add $500,000 to stock B. What will the fund's required rate of return be after this change?
3. (15 Percent) Assume that you are the portfolio manager of the YTT Fund, a $5 million hedge fund that contains the following stocks. The required rate of return on the market is 12.00% and the risk-free rate is 4.50%. Stock A B с D E Amount $850,000 $650,000 $1,500,000 $800,000 $1,200,000 $5,000,000 Beta 1.5 0.8 1.3 0.6 1.2 a. What rate of return should investors expect (and require) on this fund and what is the beta of this fund? b. The investors require you to reduce the risk of the fund and thus you plan to cut the investment in Stock C by $500,000 and add $500,000 to stock B. What will the fund's required rate of return be after this change?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Transcribed Image Text:3. (15 Percent) Assume that you are the portfolio manager of the YTT Fund, a $5 million hedge
fund that contains the following stocks. The required rate of return on the market is 12.00% and
the risk-free rate is 4.50%.
Stock
A
B
C
D
E
Amount
$850,000
$650,000
$1,500,000
$800,000
$1,200,000
$5,000,000
Beta
1.5
0.8
1.3
0.6
1.2
a.
What rate of return should investors expect (and require) on this fund and what is the beta
of this fund?
b.
The investors require you to reduce the risk of the fund and thus you plan to cut the
investment in Stock C by $500,000 and add $500,000 to stock B. What will the fund's
required rate of return be after this change?
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