You are a small money manager managing $20,000,000 in assets. Your investment

portfolio consists of 15% T-bills (with an estimated beta = 0), 15% bonds (with an

estimated beta = 0.70), 30% mid-cap stocks (with an estimated beta = 1.00), and 40%

growth stocks (with an estimated beta = 1.20).

a.The risk-free rate, rRF, is 2.5%. The market risk premium, (rM - rRF), is 6%. What is the required rate of return on your investment portfolio?

b.If you switch $750,000 out of T-bills and invest $400,000 of it in growth stocks and

$350,000 of it in mid-cap stocks, what would be the required rate of return on your

portfolio?