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

To calculate the required rate of return for the Scientific Investment Fund, we need to use the Capital Asset Pricing Model (CAPM) formula:

Required Rate of Return = Risk-Free Rate + Beta * (Market Required Rate of Return - Risk-Free Rate)

Since we are not given the beta for the Scientific Investment Fund, we can assume that it is average or close to 1.

Required Rate of Return = 7% + 1 * (15% - 7%) = 7% + 1 * 8% = 15%

Therefore, the required rate of return for the Scientific Investment Fund is 15%. The closest option to this is option C) 13.1%, which is incorrect.

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