A mutual fund manager has a $450 million portfolio with a beta of 1.20. The risk-free rate is 2.5%, and the market risk premium is 5.00%. The manager expects to receive an additional $150 million which she plans to invest in several different stocks. After investing the additional funds, she wants to reduce the portfolio's risk level so that once the additional funds are invested the portfolio's required return will be 7.50%. What must the average beta of the new stocks added to the portfolio be (not the new portfolio's beta) to achieve the desired required rate of return?
A mutual fund manager has a $450 million portfolio with a beta of 1.20. The risk-free rate is 2.5%, and the market risk premium is 5.00%. The manager expects to receive an additional $150 million which she plans to invest in several different stocks. After investing the additional funds, she wants to reduce the portfolio's risk level so that once the additional funds are invested the portfolio's required return will be 7.50%. What must the average beta of the new stocks added to the portfolio be (not the new portfolio's beta) to achieve the desired required rate of return?
Chapter8: Analysis Of Risk And Return
Section: Chapter Questions
Problem 5P
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A mutual fund manager has a $450 million portfolio with a beta of 1.20. The risk-free rate is 2.5%, and the market risk premium is 5.00%. The manager expects to receive an additional $150 million which she plans to invest in several different stocks. After investing the additional funds, she wants to reduce the portfolio's risk level so that once the additional funds are invested the portfolio's required return will be 7.50%. What must the average beta of the new stocks added to the portfolio be (not the new portfolio's beta) to achieve the desired required
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