A mutual fund manager has a $20 million portfolio with a beta of 2.7. The risk-free rate is 5.5%, and the market risk premium is 7%. The manager expects to receive an additional $5 million, which she plans to invest in a number of stocks. After investing the additional funds, she wants the fund's required return to be 23%. What should be the average beta of the new stocks added to the portfolio? Negative value, if any, should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to one decimal place.

A mutual fund manager has a $20 million portfolio with a beta of 2.7. The risk-free rate is 5.5%, and the market risk premium is 7%. The manager expects to receive an additional $5 million, which she plans to invest in a number of stocks. After investing the additional funds, she wants the fund's required return to be 23%. What should be the average beta of the new stocks added to the portfolio? Negative value, if any, should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to one decimal place.

Essentials of Business Analytics (MindTap Course List)

2nd Edition

ISBN:9781305627734

Author:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson

Publisher:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson

Chapter11: Linear Optimization Models

Section: Chapter Questions

Problem 3P: Blair Rosen. Inc. (BR) is a brokerage firm that specializes in investment portfolios designed to...

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Blair Rosen. Inc. (BR) is a brokerage firm that specializes in investment portfolios designed to meet the specific risk tolerances of its clients. A client who contacted BR this past week has a maximum of 50,000 to invest. BRs investment advisor decides to recommend a portfolio consisting of two investment funds: an Internet fund and a Blue Chip fund. The Internet fund has a projected annual return of 12%, and the Blue Chip fund has a projected annual return of 9%. The investment advisor requires that at most 35,000 of the clients funds should be invested in the Internet fund. BR services include a risk rating for each investment alternative. The Internet fund, which is the more risky of the two investment alternatives, has a risk rating of 6 per 1,000 invested. The Blue Chip fund has a risk rating of 4 per 1,000 invested. For example, if 10,000 is invested in each of the two investment funds, BRs risk rating for the portfolio would be 6(10) + 4(10) = 100. Finally. BR developed a questionnaire to measure each clients risk tolerance. Based on the responses, each client is classified as a conservative, moderate, or aggressive investor. Suppose that the questionnaire results classified the current client as a moderate investor. BR recommends that a client who is a moderate investor limit his or her portfolio to a maximum risk rating of 240. a. Formulate a linear programming model to find the best investment strategy for this client. b. Build a spreadsheet model and solve the problem using Solver. What is the recommended investment portfolio for this client? What is the annual return for the portfolio? c. Suppose that a second client with 50,000 to invest has been classified as an aggressive investor. BR recommends that the maximum portfolio risk rating for an aggressive investor is 320. What is the recommended investment portfolio for this aggressive investor? d. Suppose that a third client with 50,000 to invest has been classified as a conservative investor. BR recommends that the maximum portfolio risk rating for a conservative investor is 160. Develop the recommended investment portfolio for the conservative investor.
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