# A money manager is managing the account of a large investor; calculate Stock D's estimated beta.

A money manager is managing the account of a large investor; the investor holds the following stocks:

STOCK AMOUNT INVESTED ESTIMATED BETA

A $2,000,000 0.80

B $5,000,000 1.10

C $3,000,000 1.40

D $5,000,000 ????

The portfolio's required rate of return is 17%; the risk-free rate is 7% and the required return on the average stock in the market is 14%.

Calculate Stock D's estimated beta.

a. 1.256

b. 1.389

c. 1.429

d. 2.026

e. 2.154

Show all work.

© BrainMass Inc. brainmass.com June 3, 2020, 4:58 pm ad1c9bdddfhttps://brainmass.com/business/beta-and-required-return-of-a-project/determining-stock-estimated-beta-10008

#### Solution Preview

First we calculate the portfolio Beta using SML:

ER = Rf+(Rm-Rf)*Beta

i.e. 17 = 7 + (14-7)*Beta or 10 = 7*B

Then Beta = ...

#### Solution Summary

This solution assists with calculating Stock D's estimated beta.

$2.19