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Assume that you are an investment manager at BrownRock and managing a $4 million dollar stock account. Currently, the stock account has a beta

  

Assume that you are an investment manager at BrownRock and managing a $4 million dollar stock account. Currently, the stock account has a beta of 1.0. Assume that the risk free return rate is 4.25 percent and the expected stock market return is 6 percent. Now, assume that the stock account is expected to have an additional $6 million new fund inflow, and assume that you plan to invest the additional $6 million into a new stock XYZ. After that, if you hope that the stock account has an overall expected return of 13 percent, the how much should be XYZ's beta?

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To calculate the required beta for stock XYZ we can use the Capital Asset Pricing Model CAPM formula ... blur-text-image

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