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Now it's time for you to practice what you've learned. Suppose that a mutual fund manager has a $8 million portfolio with a beta of
Now it's time for you to practice what you've learned. Suppose that a mutual fund manager has a $8 million portfolio with a beta of 2. Also suppose that the risk free rate is 4.5% and the market risk premium is 4%. The manager expects to receive an additional $2 million, which is to be invested in a number of new stocks to add to the portfolio. After these stocks are added, the manager would like the fund's required rate of return to be 11.7%. For notation, let r represent the required return, let rrr represent the risk free rate, let b represent the beta of a group of stocks, and I'm represent the market return. If the required rate of return is to remain at 11.7%, the beta of the portfolio, after the new stocks have been added, must be The beta of the portfolio after the stocks have been added (which you just calculated), along with the new total amount of funds invested, implies that the beta of the stocks added to the portfolio must be Grade Final Step TOTAL SCORE: 5/8 (to complete this step and unlock the next step)
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