Suppose you are managing a $4 million investment fund. The fund’s portfolio consists of four stocks with the following investments and betas:
Stock Investment Beta
A $ 200,000 1.2
B 400,000 -0.6
C 1,400,000 1.5
D 2,000,000 0.5
a. Calculate the portfolio weight for each individual stock.
b. Calculate the portfolio beta.
c. If the market’s required rate of return is 7% and the risk-free rate is 2%, what is the fund’s required rate of return?