Reference no: EM133056580
Equations must be shown if applicable
1. Is it possible to construct a portfolio of real-world stocks that has a required return equal to the risk-free rate? Explain.
2. PORTFOLIO BETA
An individual has $20,000 invested in a stock with a beta of 0.6 and another $75,000 invested in a stock with a beta of 2.5. If these are the only two investments in her portfolio, what is her portfolio's beta?
3. PORTFOLIO REQUIRED RETURN
Suppose you are the money manager of a $4.82 million investment fund. 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
|
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?
4. PORTFOLIO BETA
A mutual fund manager has a $20 million portfolio with a beta of 1.7. The risk-free rate is 4.5%, and the market risk premium is 7%. The manager expects to receive an additional $5 million, which she plans to invest in a number of stocks. After investing the additional funds, she wants the fund's required return to be 15%. What should be the average beta of the new stocks added to the portfolio?