Assume that you manage a $10.75 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 $5.25 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)9.07%
B)9.30%
C)9.53%
D)9.77%

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 (10.75 / 16) * 1.05 + (5.25 / 16) * 0.65 = 0.91. The required rate of return on the new portfolio is 4.20% + 0.91 * 5.30% = 9.07%.

Assume That You Manage a $10