A manager has a $200.0 million portfolio with a beta of 1.40. The risk-free rate is 4.0%, and the market risk premium is 5.0%. The manager expects to receive an additional $50.0 million which they plan to invest in several stocks. After investing the additional funds, they wants the fund's required return to be 12%. What is the required return on their portfolio (before they receive the additional funds)? If they want the fund's required return to be 12% (after they invest the additional $50 million), what must be the beta of the new portfolio? What must the average beta of the new stocks added to the portfolio be to achieve the desired required rate of return?

A manager has a $200.0 million portfolio with a beta of 1.40. The risk-free rate is 4.0%, and the market risk premium is 5.0%. The manager expects to receive an additional $50.0 million which they plan to invest in several stocks. After investing the additional funds, they wants the fund's required return to be 12%. What is the required return on their portfolio (before they receive the additional funds)? If they want the fund's required return to be 12% (after they invest the additional $50 million), what must be the beta of the new portfolio? What must the average beta of the new stocks added to the portfolio be to achieve the desired required rate of return?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 5P

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