Problem 2: A mutual fund manager has a $40 million portfolio with a beta of 1.00. The risk-free rate is 4.25%, and the market risk premium is 6.00%. The manager expects to receive an additional $60 million, which she plans to invest in additional stocks. After investing the additional funds, she wants the fund's required and expected return to be 13.00%. What must the average beta of the new stocks be to achieve the target required rate of return?
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- Suppose that a mutual fund manager has a $20 million portfolio with a beta of 1.7. Also suppose that the risk free rate is 4.5% and the market risk premium is 5%. The manager expects to receive an additional $5 million, which is to be invested in a number of new stocks to add to the portfolio. After these stocks are added, the manager would like the fund's required rate of return to be 12%. For notation, let represent the required return, let RF represent the risk free rate, let b represent the beta of a group of stocks, and m represent the market return. According to the video, which equation most closely describes the security market line (SML)? OT=TRE+bx (M + TRF) O TRE-6x (rM - TRF) Or=TRF + TM-TRF ORF + bx (rM - TRF) Hint: Recall that the manager wants the new required rate of return for the portfolio to remain at 12%. Using the equation you just identified, and plugging in the relevant information, yields a beta of the portfolio, after the new stocks have been added, of…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 $11.50 million, which you invest in stocks with an average beta of 0.82. What is the required rate of return on the new portfolio? (Hint: You must first find the market risk premium, then find the new portfolio beta.)Assume that you are the portfolio manager of the SF Fund, a $3 million hedge fund that contains the following stocks. The required rate of return on the market is 11.00% and the risk-free rate is 5.00%. What rate of return should investors expect (and require) on this fund? (Hint: first calculate the weights, then calculate the beta of the portfolio and then calculate the required return of the portfolio.) Show your work. Stock Amount Weights Beta A $1,075,000 ? 1.20 B 675,000 ? 0.50 C 750,000 ? 1.40 D 500,000 ? 0.75 $3,000,000
- Assume that you manage a $10.00 million mutual fund that has a beta of 1.25 and a 9.50% required return. The risk-free rate is 2.20%. You now receive another $15.00 million, which you invest in stocks with an average beta of 0.80. What is the required rate of return on the new portfolio? (Hint: You must first find the market risk premium, then find the new portfolio beta.) Do not round your intermediate calculations. a. 9.17% b. 8.71% c. 7.92% d. 7.45% e. 9.65%Please show working Please answer ALL OF QUESTIONS 1 AND 2 1. Suppose you are the money manager of a $4.95 million investment fund. The fund consists of four stocks with the following investments and betas: Stock Investment Beta A $ 280,000 1.50 B 460,000 (0.50) C 1,260,000 1.25 D 2,950,000 0.75 If the market's required rate of return is 8% and the risk-free rate is 4%, what is the fund's required rate of return? Do not round intermediate calculations. Round your answer to two decimal places. 2. Madsen Motors's bonds have 13 years remaining to maturity. Interest is paid annually; they have a $1,000 par value; the coupon interest rate is 10%; and the yield to maturity is 5%. What is the bond's current market price? Round your answer to the nearest cent.A mutual fund manager has a $40.00 million portfolio with a beta of 1.00. The risk-free rate is 4.25%, and the market risk premium is 6.00%. The manager expects to receive an additional $29.50 million which she plans to invest in additional stocks. After investing the additional funds, she wants the fund's required and expected return to be 13.00%. What must the average beta of the new stocks be to achieve the target required rate of return? Do not round your intermediate calculations. (show the work on a scrap paper) a. 2.08 b. 2.18 c. 2.60 d. 1.66 e. 1.87
- A company's fund manager has a P20,000,000 portfolio with a beta of 0.75. The risk-free rate is 4.50% and the market risk premium is 5.00%.The manager expects to receive an additional P30,000,000, which she plans to invest in several stocks. After investing the additional funds, she wants the fund's required return to be 9.50%. 1. What is the required rate of return on the initial P20M investment? 2. What is the rate of return of all risky and risk-free securities? 3. To achieve the fund manager’s required return target, the funds should be invested in an investment with a beta of 4. Judge the overall riskiness of the P50M portfolio A. Aggressive B. Neutral C. ConservativeAs a mutual fund manager, you have a $40.00 million portfolio with a beta of 1.20. The risk-free rate is 3.25%, and the market risk premium is 7.00%. You expect to receive an additional $10.00 million which you plan to invest in additional stocks. After investing the additional funds, you want the fund's required and expected return to be 12.00%. What must the average beta of the new stocks be to achieve the target required rate of return? Do not round your intermediate calculations.Thank you
- Assume that you manage a $12.00 million mutual fund that has a beta of 1.15 and a 9.70% required return. The risk-free rate is 2.20%. You now receive another $15 million, which you invest in stocks with an average beta of 1.05. What is the required rate of return on the new portfolio? Do not round your intermediate calculations.CAPM As an equity analyst, you have developed the following return forecasts and risk estimates for two different stock mutual funds (Fund T and Fund U): Fund T Fund U Forecasted Return CAPM Beta 1.20 0.80 9.0% 10.0 a. If the risk-free rate is 3.9 percent and the expected market risk premium (E(RM)-RFR) is 6.1 percent, calculate the required return for each mutual fund according to the CAPM. b. Using the estimated required of returns from part (a) along with your return forecasts, demonstrate whether Fund T and Fund U are currently priced to fall directly on the security market line (SML), above the SML, or below the SML. c. According to your analysis, are Funds T and U overvalued, undervalued, or properly valued?Assume that you are the portfolio manager of the Forestie Fund, a $3 million hedge fund thatcontains the following stocks. The required rate of return on the market is 11.00% and therisk-free rate is 5.00%. Compute what is the portfolio’s required return should investors expecton this fund? (Please state your answer in 2 decimal points)Stock Amount BetaA $1,075,000 1.20B $675,000 0.50C $750,000 1.40D $500,000 0.75