Consider the following information and then calculate the required rate of return for the Universal Investment Fund,which holds 4 stocks.The market's required rate of return is 13.25%,the risk-free rate is 7.00%,and the Fund's assets are as follows:
A) 9.58%
B) 10.09%
C) 10.62%
D) 11.18%
E) 11.77%

Question

Consider the following information and then calculate the required rate of return for the Universal Investment Fund,which holds 4 stocks.The market's required rate of return is 13.25%,the risk-free rate is 7.00%,and the Fund's assets are as follows: 
A) 9.58% 
B) 10.09% 
C) 10.62% 
D) 11.18% 
E) 11.77%

Quizplus · Accepted Answer

$\begin{array}{ll} r_\mathrm{M} & 13.25 \% \ r_\mathrm{RF} & 7.00 \% \end{array}$ Find portfolio beta: $\begin{array}{rrrr} & \text { Weight }& \text { Beta } & \text { Product } \ \$ 200,000 & 0.100 & 1.50 & 0.1500 \ \$ 300,000 & 0.150 & -0.50 & -0.0750 \ \$ 500,000 & 0.250 & 1.25 & 0.3125 \ \$ 1,000,000 & 0.500 & 0.75 & \underline{0.3750} \ \hline \$ 2,000,000 & 1.000 & & \$ 0.7625 &=\text { portfolio beta } \end{array}$ Find RP_M = r_M F1F1F1S1F1F1F10 r_RF = 6.25% r_s = r_RF + b(RP_M)= 11.77%

Consider the Following Information and Then Calculate the Required Rate