Assume that you are the portfolio manager of the SF Fund, that contains the following stocks. The required rate of return on the market is 12.00% and the risk-free rate is 5.00%. What rate of return should investors expect (and require) on this fund?

Stock Amount Beta

A $500,000 1.25

B 750,000 0.90

C 250,000 1.20

D 1,000,000 1.10

$2,500,000

A)

Company Amount Weight Beta Wt beta

Stock A $500,000 0.20 1.25 0.25

Stock B 750,000 0.30 0.90 0.27

Stock C 250,000 0.10 1.20 0.12

Stock D 1,000,000 0.40 1.10 0.44

$2,500,000 1.000 b_Portfolio = 1.08