Question

Assume that you are the portfolio manager of the SF Fund, a $3 million hedge fund that contains the following stocks. The required rate of return on the market is 11.00% and the risk-free rate is 2.00%. What rate of return should investors expect (and require) on this fund?

Stock Amount Beta
A 1075000 1.2
B 675000 0.5
C 750000 1.4
D 500000 0.75

Answer 1

a

Step-by-step explanation:

AVERAGE BETA = (INVESTMENT * BETA) / TOTAL INVESMENT

3052500 / 3000000

1.0175

Required Return = Risk free Return + (Market Return - Risk free return)* Beta

Required Return = 5% + (10% - 5%)*1.0175

Required Return = 10.08%