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Multiple choice

A portfolio manager has a $10 million portfolio, which consists of $1 million invested in 10 separate stocks. The portfolio beta is 1.2. The risk-free rate is 5% and the market risk premium is 6%.

____ 6. What is the portfolio's required return?
a. 9.85%
b. 12.00%
c. 12.20%
d. 12.35%
e. 6.20%

____ 7. The manager sells one of the stocks in her portfolio for $1 million. The stock she sold has a beta of 0.9. She takes the $1 million and uses the money to purchase a new stock that has a beta of 1.6. What is the required return of her portfolio after purchasing this new stock?
a. 14.60%
b. 10.75%
c. 12.62%
d. 12.35%
e. 13.35%

Solution Preview

6. Using CAPM
Required return = Rf + (Rm-Rf) beta
Required return = 5% + 6% X 1.2 = ...

Solution Summary

The solution explains two multiple choice questions relating to required return

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