Question

Assume that you are the portfolio manager of the sf fund, a $400,000 hedge fund that contains the following stocks. the required rate of return on the market is 13.0%, the real risk-free rate is 2.0%, and investors expect a 4.0% future inflation rate. what rate of return should investors expect (and require) on this fund?

Answer 1

The required rate of return on a fund represents the rate of return that investors expect and require on that fund. It is calculated based on the real risk-free rate, the expected inflation rate, and the risk premium. In this case, the required rate of return on the SF Fund is 19.0%.

Step-by-step explanation:

The required rate of return on a fund is the rate of return that investors expect and require on that fund. It is based on the risk associated with the investment and the expected return of the market. In this case, the required rate of return on the SF Fund can be calculated as follows:

Required rate of return = Real risk-free rate + Expected inflation rate + Risk premium

Given that the real risk-free rate is 2.0%, the expected inflation rate is 4.0%, and the required rate of return on the market is 13.0%, we can calculate the required rate of return on the SF Fund:

Required rate of return = 2.0% + 4.0% + 13.0% = 19.0%

Therefore, investors should expect and require a rate of return of 19.0% on the SF Fund.