Consider the following information,and then calculate the required rate of return for the Scientific Investment Fund.The total investment in the fund is $2 million.The market required rate of return is 15 percent,and the risk-free rate is 7 percent.
A) 14.3%
B) 15.0%
C) 13.1%
D) 12.7%
E) 10.3%

Question

Consider the following information,and then calculate the required rate of return for the Scientific Investment Fund.The total investment in the fund is $2 million.The market required rate of return is 15 percent,and the risk-free rate is 7 percent. 
A) 14.3% 
B) 15.0% 
C) 13.1% 
D) 12.7% 
E) 10.3%

Quizplus · Accepted Answer

The required rate of return for the Scientific Investment Fund can be calculated using the Capital Asset Pricing Model (CAPM):
Required rate of return = risk-free rate + beta x (market required rate of return - risk-free rate)
Since the fund's beta is not given, we assume that it is equal to 1 (average risk). Thus,
Required rate of return = 7% + 1 x (15% - 7%) = 13.1%
Therefore, the best choice is C).

Consider the Following Information,and Then Calculate the Required Rate of Return