Question
1. Suppose you are the money manager of a $4.66 million investment fund. The fund consists of four stocks with the following investments and betas:
1.
Suppose you are the money manager of a $4.66 million investment fund. The fund consists of four stocks with the following investments and betas:
Stock | Investment | Beta | ||
A | $ 480,000 | 1.50 | ||
B | 300,000 | (0.50 | ) | |
C | 980,000 | 1.25 | ||
D | 2,900,000 | 0.75 |
If the market's required rate of return is 8% and the risk-free rate is 3%, what is the fund's required rate of return? Do not round intermediate calculations. Round your answer to two decimal places.
%
2.Calculate the required rate of return for Mudd Enterprises assuming that investors expect a 3.7% rate of inflation in the future. The real risk-free rate is 2.0%, and the market risk premium is 7.0%. Mudd has a beta of 2.4, and its realized rate of return has averaged 15.0% over the past 5 years. Round your answer to two decimal places.
%
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