You have been managing a $5 million portfolio that has a beta of 1.25 and a required rate of return of 12%. The current risk-free rate is 5.25%.
1. What is the market risk premium from the CAPM?
A. 0.054
B. 0.056
C. 0.058
D. 0.060
2. Assume that you receive another $500,000 ($0.5 million) and invest the money in a stock with a beta of 1.00. What is the portfolio beta of your new portfolio ($5.5 million in total)?
A. 1.2187
B. 1.2245
C. 1.2273
D. 1.2360
3. What will be the required return on your new portfolio?
A. 11.50%
B. 11.65%
C. 11.72%
D. 11.88%