Suppose you are the money manager of a $4 million investment fund. The fund consists of four stocks with the following investments and betas: Stock Investment Beta A $ 400,000 1.50 B 600,000 (0.50) C 1,000,000 1.25 D 2,000,000 0.75 If the market’s required rate of return is 14% and the risk-free rate is 6%, what is the fund’s required rate of return?
8-7 PORTFOLIO REQUIRED RETURN Suppose you are the money manager of a $4 million investment fund. The fund consists of four stocks with the following investments and betas:
Stock Investment Beta
A $ 400,000 1.50
B 600,000 (0.50)
C 1,000,000 1.25
D 2,000,000 0.75
If the market’s required
8-8 BETA COEFFICIENT Given the following information, determine the beta coefficient for Stock J that is consistent with equilibrium: ^rJ ¼ 12.5%; rRF ¼ 4.5%; rM ¼ 10.5%.
8-9 REQUIRED RATE OF RETURN Stock R has a beta of 1.5, Stock S has a beta of 0.75, the expected rate of return on an average stock is 13%, and the risk-free rate of return is 7%. By how much does the required return on the riskier stock exceed the required return on the less risky stock?
8-10
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