Determining the required rate of return
Not what you're looking for?
Please help with the following problem.
I have a 4 million dollar investment fund it consists of 4 stocks
stock investment beta
a 400000 1.50
b 600000 -0.50
c 1000000 1.25
d 2000000 0.75
The market required rate of return is 14 percent and the risk free rate is 6 percent, how do I determine the fund's required rate of return.
Purchase this Solution
Solution Summary
This solution is comprised of a detailed explanation to answer how to determine the fund's required rate of return.
Solution Preview
First, you need to find the required rate of return for each stock by using CAPM approach. Under CAPM or Capital Asset Pricing Model approach, we can substitute the values given into the CAPM equation to estimate the stock's required rate of return.
rs = rf + (rm - rf)b where rs is the stock's required rate of return
rm is the market required rate of ...
Purchase this Solution
Free BrainMass Quizzes
Economic Issues and Concepts
This quiz provides a review of the basic microeconomic concepts. Students can test their understanding of major economic issues.
Pricing Strategies
Discussion about various pricing techniques of profit-seeking firms.
Economics, Basic Concepts, Demand-Supply-Equilibrium
The quiz tests the basic concepts of demand, supply, and equilibrium in a free market.
Elementary Microeconomics
This quiz reviews the basic concept of supply and demand analysis.
Basics of Economics
Quiz will help you to review some basics of microeconomics and macroeconomics which are often not understood.