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    Required Rate of Return for an Investment Fund

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    Consider the following information and then calculate the required rate of return for the Global Investment Fund, which holds 4 stocks. The market's required rate of return is 13.25%, the risk-free rate is 7.00%, and the Fund's assets are as follows:

    Stock Investment Beta
    A $200,000 1.50
    B $300,000 -0.50
    C $500,000 1.25
    D $1,000,000 0.75

    It could be one of these answers:

    a. 9.58%
    b. 10.09%
    c. 10.62%
    d. 11.18%
    e. 11.77%

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    Solution Preview

    With the attached formula,

    First of all, you will get

    for A = E(R) = .07 + 1.5(.1325-.07) = 16.37%
    for ...

    Solution Summary

    This solution shows step-by-step calculations to determine the required rate of return with different stocks of an investment fund.