Question 10 Portfolio Beta and CAPM [2 points]: Assume that you are the portfolio manager of the SF Fund, a $3 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 5.00%. What rate of return should investors expect (and require) on this fund? (Hint: First calculate the market risk premium, then compute the portfolio beta, and finally find the portfolios required rate of return.)

Stock Amount Beta

A $1,075,000 1.20

B 675,000 0.50

C 750,000 1.40

D 500,000 0.75

$3,000,000

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