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Average beta of the new stocks

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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?

Reference no: EM133056580

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