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    Calculating the fund's beta and required rate of return

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    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.

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    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.