Suppose you are the money manager of the following portfolio. The fund consists of four stocks with the following investments and betas: Stock Investment Beta A $ 460,000 1.50 B 500,000 (0.50) 1,260,000 1.25 2,600,000 0.75 What is the portfolio's Beta Coefficient? (4 decimal places) Beta Coefficient = If the market's required rate of return is 8% and the risk-free rate is 4%, what is the fund's required rate of return? (2 decimal places) Required Rate of Return =
Suppose you are the money manager of the following portfolio. The fund consists of four stocks with the following investments and betas: Stock Investment Beta A $ 460,000 1.50 B 500,000 (0.50) 1,260,000 1.25 2,600,000 0.75 What is the portfolio's Beta Coefficient? (4 decimal places) Beta Coefficient = If the market's required rate of return is 8% and the risk-free rate is 4%, what is the fund's required rate of return? (2 decimal places) Required Rate of Return =
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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![**Portfolio Beta Coefficient and Required Rate of Return Calculation**
Suppose you are the money manager of the following portfolio. The fund consists of four stocks with the following investments and betas:
| Stock | Investment | Beta |
|-------|------------|-------|
| A | $460,000 | 1.50 |
| B | $500,000 | (0.50)|
| C | $1,260,000 | 1.25 |
| D | $2,600,000 | 0.75 |
**Calculation Tasks:**
1. **Portfolio's Beta Coefficient (4 decimal places):**
- The Beta Coefficient measures the portfolio's volatility relative to the overall market.
- Calculate the weighted average of the betas based on the investment amounts.
**Beta Coefficient =** [Input Box]
2. **Fund’s Required Rate of Return:**
- If the market’s required rate of return is 8% and the risk-free rate is 4%, calculate the fund's required rate of return using the Capital Asset Pricing Model (CAPM):
\[
\text{Required Rate of Return} = \text{Risk-free Rate} + \beta (\text{Market Rate of Return} - \text{Risk-free Rate})
\]
**Required Rate of Return =** [Input Box] %
Use these calculations to analyze the risk and expected performance of your portfolio.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F0612e210-5e44-4b86-9116-976604f2cca4%2Fc48bf11c-fee6-452f-bc23-61ad20b9315f%2F4qp7eu_processed.jpeg&w=3840&q=75)
Transcribed Image Text:**Portfolio Beta Coefficient and Required Rate of Return Calculation**
Suppose you are the money manager of the following portfolio. The fund consists of four stocks with the following investments and betas:
| Stock | Investment | Beta |
|-------|------------|-------|
| A | $460,000 | 1.50 |
| B | $500,000 | (0.50)|
| C | $1,260,000 | 1.25 |
| D | $2,600,000 | 0.75 |
**Calculation Tasks:**
1. **Portfolio's Beta Coefficient (4 decimal places):**
- The Beta Coefficient measures the portfolio's volatility relative to the overall market.
- Calculate the weighted average of the betas based on the investment amounts.
**Beta Coefficient =** [Input Box]
2. **Fund’s Required Rate of Return:**
- If the market’s required rate of return is 8% and the risk-free rate is 4%, calculate the fund's required rate of return using the Capital Asset Pricing Model (CAPM):
\[
\text{Required Rate of Return} = \text{Risk-free Rate} + \beta (\text{Market Rate of Return} - \text{Risk-free Rate})
\]
**Required Rate of Return =** [Input Box] %
Use these calculations to analyze the risk and expected performance of your portfolio.
Expert Solution
Step 1
Calculation of portfolio Beta Coefficient
| Stock | Investment | Portfolio ratio | Beta | Portfolio beta |
| A | B=A/Total of A (I.E.4820000) | C | D=B*C | |
| A | 460000 | 0.0954 | 1.50 | 0.1432 |
| B | 500000 | 0.1037 | -0.50 | -0.0519 |
| C | 1260000 | 0.2614 | 1.25 | 0.3268 |
| D | 2600000 | 0.5394 | 0.75 | 0.4046 |
| Portfolio beta | 0.8226 | |||
Hence
Portfolio beta = 0.8226
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