A portfolio manager is holding the following investments: Stock Amount Invested Beta RM10 million 1.4 Y 20 million 1.0 40 million 0.8 The manager plans to sell his holdings of Stock Y. The money from the sale will be used to purchase another RM15 million of Stock X and another RM5 million of Stock Z. The risk-free rate is 5 percent and the market risk premium is 5.5 percent. How many percentage points higher will the required return on the portfolio be after he completes this transaction?

A portfolio manager is holding the following investments: Stock Amount Invested Beta RM10 million 1.4 Y 20 million 1.0 40 million 0.8 The manager plans to sell his holdings of Stock Y. The money from the sale will be used to purchase another RM15 million of Stock X and another RM5 million of Stock Z. The risk-free rate is 5 percent and the market risk premium is 5.5 percent. How many percentage points higher will the required return on the portfolio be after he completes this transaction?

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

Problem 1PS

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Concept explainers

Portfolio Management

Portfolio management is the process by which an investor decides that how the person will invest in a variety of assets in order to get a desired return in the future. A portfolio means a pool of assets that includes securities, bonds, and other investment instruments which helps in risk minimization of the money that has been invested. In other words, it can be said that a portfolio means a combination of assets in which an investor decides to invest their money in order to get a lump sum return in the future or even a series of cash flow that the person is expecting at the end of their job life.

Question

A portfolio manager is holding the following investments:
Stock
Amount Invested
Beta
RM10 million
1.4
Y
20 million
1.0
40 million
0.8
The manager plans to sell his holdings of Stock Y. The money from the
sale will be used to purchase another RM15 million of Stock X and
another RM5 million of Stock Z. The risk-free rate is 5 percent and the
market risk premium is 5.5 percent. How many percentage points higher
will the required return on the portfolio be after he completes this
transaction?

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