Assume that you are the portfolio manager of the TTY Fund, a $5 million hedge fund that contains the following stocks. The required rate of return on the market is 11.00% and the risk-free rate is 3%. What rate of return should investors expect (and require) on this fund and what is the beta of this fund?
The investors require you to reduce the risk of the fund and thus you plan to cut the investment in Stock C by $600,000 and add $600,000 to stock D. What will the fund's required rate of return be after this change?
Do not round your intermediate calculations.

 

Assume that you manage a $12 million mutual fund that has a beta of 1.25 and a 9.80% required return. The risk-free rate is 2.50%. You now receive another $14 million, which you invest in stocks with an average beta of 1.08. What is the required rate of return on the new portfolio? Do not round your intermediate calculations.
XYZ Inc. is experiencing rapid growth. Earnings and dividends are expected to grow at a rate of 16% during the next 2 years, at 14% the following year, and at a constant rate of 8% during Year 4 and thereafter. Its last dividend was $1.55, and its required rate of return is 12%.
a. Calculate the value of the stock today.
b. Calculate P1 and P2 (Prices for Year 1 and Year 2).
c. Calculate the dividend and capital gains yields for Years 1, 2, and 3.

Stock A B C D E Amount $850,000 $650,000 $1,500,000 $800,000 $1,200,000 $5,000,000 Beta 1.5 0.7 1.3 0.5 1.2