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What is the expected return for the overall stock market

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Q1. Jane Katy, a mutual fund manager, has a $20 million portfolio with a beta of 1.5. The risk-free rate is 4.5% and the market risk premium is 5.5%.

(i) What is the required rate of return for this portfolio?

(ii) Jane expects to receive an additional $5 million, which she plans to invest in several stocks. After investing the additional funds, she wants the fund's required return to be 13%. Given the new required return what is the average beta of the new portfolio?

(iii) What is the average beta of the $5 million-dollar investment?

Q2. An individual has $35,000 invested in a stock that has a beta of 0.8 and $40,000 invested in a stock with a beta of 1.4. If these are the only investments in her portfolio, what is her portfolio's beta?

Q3. Assume that the risk-free rate is 6% and the expected return on the market is 13%. What is the expected rate of return on a stock that has a beta of 0.7?

Q4. Assume the risk-free rate is 5% and the market premium is 6%, What is the expected return for the overall stock market? What is the required rate of return on a stock that has a beta of 1.2?

Reference no: EM132825862

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