Assume that you manage a $10.00 million mutual fund that has a beta of 1.05 and a 9.50% required return.The risk-free rate is 4.20%.You now receive another $5.00 million,which you invest in stocks with an average beta of 0.65.What is the required rate of return on the new portfolio? (Hint: You must first find the market risk premium,then find the new portfolio beta.)
A)8.83%
B)9.05%
C)9.27%
D)9.51%
E)9.74%

Question

Quizplus · Accepted Answer

The correct answer is A.The market risk premium is 9.50% - 4.20% = 5.30%. The new portfolio beta is (10.00 / 15.00) * 1.05 + (5.00 / 15.00) * 0.65 = 0.88. The required rate of return on the new portfolio is 4.20% + 0.88 * 5.30% = 8.83%.

Assume That You Manage a $10