1 Assume that you manage a $100 million mutual fund that has a beta of 1.05 and a 9.50% required return. 2 The risk-free rate is 4.00%. 3 You now receive another $60 million, which you invest in stocks with an average beta of 0.85 4 5 What is the required rate of return on the new portfolio? 6 (Hint: First, you must calculate the market risk premium, then you must calculate the new portfolio beta; then you can 7 calculate the required rate of return on the new portfolio.) 8 9 10 11