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:
$\begin{array}{lll}
Stock&Investment&Beta\
A&\$ 200,000 & 1.50 \
B&\$ 300,000 & -0.50 \
C&\$ 500,000 & 1.25 \
D&\$ 1,000,000 & 0.75
\end{array}$

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: 
$\begin{array}{lll}
Stock&Investment&Beta\
A&\$ 200,000 & 1.50 \
B&\$ 300,000 & -0.50 \
C&\$ 500,000 & 1.25 \
D&\$ 1,000,000 & 0.75
\end{array}$

Quizplus · Accepted Answer

$\begin{array} { l r } 
r _ { \mathrm { M } } & 13.25 \% \
r _ { \mathrm { RF } } & 7.00 \%
\end{array}$ 
Find portfolio beta:
 $\begin{array}{llrr}
& \text { Weight }& \text { Beta }& \text { Product } \
\$ 200,000 &0.100& 1.50&0.1500 \
\$ 300,000 & 0.150 & -0.50 & -0.0750 \
\$ 500,000 & 0.250 & 1.25 & 0.3125 \
\$ 1,000,000 & \underline{0.500} & 0.75 & \underline{0.3750} \
\$ 2.000 .000 & 1.000 && 0.7625&=\text { portfolio beta }
\end{array}$ 
Find RPM = rM -rRF = 6.25% rs = rRF + b(RPM) = 11.77%