eBook Problem Walk-Through

a. Suppose you are the money manager of a $4.68 million investment fund. The fund consists of four stocks with the following investments and betas:

Stock	Investment	Beta
A	$ 240,000		1.50
B	700,000		(0.50)
C	1,440,000		1.25
D	2,300,000		0.75

If the market's required rate of return is 8% and the risk-free rate is 5%, what is the fund's required rate of return? Do not round intermediate calculations. Round your answer to two decimal places.

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b. Calculate the required rate of return for Mudd Enterprises assuming that investors expect a 4.6% rate of inflation in the future. The real risk-free rate is 2.0%, and the market risk premium is 6.0%. Mudd has a beta of 2.2, and its realized rate of return has averaged 12.0% over the past 5 years. Round your answer to two decimal places.

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