Suppose you are the money manager of a $3.82 million investment fund. The fund consists of four stocks with the following investments and betas: Stock Investment Beta A $ 260,000 1.50 B 800,000 (0.50 ) C 960,000 1.25 D 1,800,000 0.75 If the market's required rate of return is 8% and the risk-free rate is 3%, what is the fund's required rate of return? Do not round intermediate calculations. Round your answer to two decimal places. %
Suppose you are the money manager of a $3.82 million investment fund. The fund consists of four stocks with the following investments and betas: Stock Investment Beta A $ 260,000 1.50 B 800,000 (0.50 ) C 960,000 1.25 D 1,800,000 0.75 If the market's required rate of return is 8% and the risk-free rate is 3%, what is the fund's required rate of return? Do not round intermediate calculations. Round your answer to two decimal places. %
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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Question
Suppose you are the money manager of a $3.82 million investment fund. The fund consists of four stocks with the following investments and betas:
| Stock | Investment | Beta | ||
| A | $ 260,000 | 1.50 | ||
| B | 800,000 | (0.50 | ) | |
| C | 960,000 | 1.25 | ||
| D | 1,800,000 | 0.75 |
If the market's required
%
Expert Solution
Calculation and Formula
Solution:-
Capital Asset Pricing Model (CAPM) is a model which gives a formula to calculate the required rate of return on a fund.
As per Capital Asset Pricing Model (CAPM),
Re = Rf + [(Rm – Rf) x Beta]
where, Re = required rate of return on a fund
Rf = risk free rate of return
Rm = required return on market
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