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.© BrainMass Inc. brainmass.com October 9, 2019, 6:58 pm ad1c9bdddf
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 ...
This solution is comprised of a detailed explanation to answer how to determine the fund's required rate of return.