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    CAPM: Required Rate of Return of portfolio

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    A money manager is holding the following portfolio:

    Stock Amount Invested Beta
    1 $300,000 0.6
    2 300,000 1.0
    3 500,000 1.4
    4 500,000 1.8

    The risk-free rate is 6 percent and the portfolio's required rate of return is 12.5 percent. The manager would like to sell all of her holdings of Stock 1 and use the proceeds to purchase more shares of Stock 4. What would be the portfolio's required rate of return following this change?

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    Solution Summary

    Calculates required rate of return of portfolio using CAPM (Capital Asset Pricing Model).