Problem:
Assume that you manage a $10.00 million mutual fund that has a beta of 1.05 and a 9.50% required return. The risk-free rate is 2.20%. You now receive another $4.50 million, which you invest in stocks with an average beta of 0.65.
Required:
Question: What is the required rate of return on the new portfolio? (Hint: You must first find the market risk premium, and then find the new portfolio beta.)
- 8.45%
- 6.94%
- 6.39%
- 6.32%
- 6.87%
Note: Solve the problem and show all work.