1. What is the required rate of return on the initial P20M investment?   2. What is the rate of return of all risky and risk-free securities?   3. To achieve the fund manager’s required return target, the funds should be invested in an investment with a beta of

EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter8: Analysis Of Risk And Return
Section: Chapter Questions
Problem 5P
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A company's fund manager has a P20,000,000 portfolio with a beta of 0.75. The risk-free rate is 4.50% and the market risk premium is 5.00%.The manager expects to receive an additional P30,000,000, which she plans to invest in several stocks. After investing the additional funds, she wants the fund's required return to be 9.50%.

 

1. What is the required rate of return on the initial P20M investment?

 

2. What is the rate of return of all risky and risk-free securities?

 

3. To achieve the fund manager’s required return target, the funds should be invested in an investment with a beta of

 

4. Judge the overall riskiness of the P50M portfolio

A. Aggressive

B. Neutral

C. Conservative

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