The portfolio manager of the TTY Fund, a $5 million hedge fund that contains the following stocks. The required rate of return on the market is 12.00% and the risk-free rate is 2.50%. What rate of return should investors expect (and require) on this fund and what is the beta of this fund? The investors require you to reduce the risk of the fund and thus you plan to cut the investment in Stock C by $500,000 and add $500,000 to stock D. What will the fund’s required rate of return be after this change? Do not round your intermediate calculations. Stock Amount Beta A $850,000 1.5 B $650,000 0.7 C $1,500,000 1.3 D $800,000 0.6 E $1,200,000 1.2 $5,000,000
The
contains the following stocks. The required
fund?
The investors require you to reduce the risk of the fund and thus you plan to cut the investment in Stock C by $500,000 and add $500,000 to stock D.
What will the fund’s required rate of return be after this change? Do not round your intermediate calculations.
Stock Amount Beta
A $850,000 1.5
B $650,000 0.7
C $1,500,000 1.3
D $800,000 0.6
E $1,200,000 1.2
$5,000,000
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