Question
A mutual fund manager has a $26 million portfolio (e.g., portfolio A) with a beta of 1.1 . The risk-free rate is 5.3% , and
A mutual fund manager has a
$26
million portfolio (e.g., portfolio A) with a beta of 1.1 . The risk-free rate is
5.3%
, and the market risk premium is
7%
. The manager expects to receive an additional $29 million, which they plan to invest in additional stocks (e.g., portfolio B). After investing the additional funds and forming a bigger portfolio by combining portfolio
A
and
B
, they want the combined fund's required and expected return to be
16%
.\ The new combined portfolio of has a total value of 55 million
(
)
=
(
$26+$29)
.\ a. Calculate the expected return of the
$26
million portfolio, portfolio
A
.
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