Problem:
Assume that you are the portfolio manager of the Delaware Fund, a $4 million mutual fund that contains the following stocks:
| Stock |
Amount |
Beta |
| A |
$400,000 |
1.50 |
| B |
$600,000 |
0.50 |
| C |
$1,000,000 |
1.25 |
| D |
$2,000,000 |
0.75 |
The required rate of return in the market is 14.00% and the risk-free rate is 6.00%.
Requirement:
Question: What rate of return should investors expect (and require) on their investment in this fund?
Note: Show all workings.