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Calculating the fund's beta and required rate of return

Alcoa's Inc.'s Pension Fund holds 4 stocks. The market's required rate of return is 6% and the risk free rate is 2%.

Stock Investment Beta
A $300,000 1.75
B $500,000 -0.75
C $1,000,000 1.05
D $500,000 0.75

a. What is this fund's beta?
b. Calculate the required rate of return.

Solution Preview

a. What is this fund's beta?
Investment in stock A=Ia=300,000
Beta of stock A=ba=1.75
Investment in stock B=Ib=500,000
Beta of stock B=bb=-0.75
Investment in stock C=Ic=1,000,000
Beta of stock ...

Solution Summary

Solution describes the steps to calculate the beta and required rate of return for the given fund.

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