Business, 19.08.2020 22:01 genyjoannerubiera

Consider the following information and then calculate the required rate of return for the Global Investment Fund, which holds 4 stocks. The market's required rate of return is 13.25%, the risk-free rate is 7.00%, and the Fund's assets are as follows: Stock Investment Beta A. $ 200,000 1.50 B. $ 300,000 -0.50 C. $ 500,000 1.25 D. $1,000,000 1.75

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Answer from: nuclislath7957

r Portfolio = 0.1489 or 14.89%

Explanation:

To calculate the required rate of return of Global Investment Fund's portfolio, we first need to determine the return on Market (rM) using the CAPM equation for required rate of return.

r = rRF + Beta * (rM - rRF)

Where,

rRF is the risk free rate

We already know the required rate of return for the market and the risk free rate. The beta for market is always 1. SO, the return on market is also 13.25% because at a beta of 1, the return on market and the required rate of return on market is same.

Now we need to calculate the required rate of return of each stock and then calculate the weighted average of the required rate of returns of each stock to calculate the required rate of return for the Global Investment Fund.

r A = 0.07 + 1.5 * (0.1325 - 0.07)

r A = 0.16375 or 16.375%

r B = 0.07 + (0.1325 - 0.07) * -0.5

r B = 0.03875 or 3.875%

r C = 0.07 + 1.25 * (0.1325 - 0.07)

r C = 0.148125 or 14.8125%

r D = 0.07 + 1.75 * (0.1325 - 0.07)

r D = 0.179375 or 17.9375%

Total investment in GIF = 200000 + 300000 + 500000 + 1000000

Total investment in GIF =2000000

required rate of return of Global Investment Fund (GIF) is,

r Portfolio = 0.16375 * 200000/2000000 + 0.03875 * 300000/2000000 +

0.148125 * 500000/2000000 + 0.179375 * 1000000/2000000

r Portfolio = 0.1489 or 14.89%

Answer from: Quest

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Answer from: Quest

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