Assume that you are the portfolio manager of the Coastal Fund, a $3 million hedge fund that contains the following stocks.
The required rate of return on the market is 10.00% and the risk-free rate is 4.00%. What rate of return should investors expect (and require) on this fund?
Stock A $1,025,000 1.70
Stock B 675,000 0.50
Stock C 750,000 1.40
Stock D 550,000 0.85
Stock Weight in Portfolio (Weight Ã- beta)
A 1,025,000/3,000,000= 0.3417 ...
This solution provides steps to determine the rate of return investors should expect.