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7/4= 4x/4<br />
1.75= beta<br />
50. Suppose you are the manager of the following portfolio that has $5<br />
million dollars invested in it. The portfolio consists of 4 stocks with the<br />
following investments and betas.<br />
Stock Investment Beta<br />
1 $500,000 1.25<br />
2 $75,000 -0.60<br />
3 1,425,000 1.50<br />
4 3,000,000 0.95<br />
If the markets required rate of return is 14%, the risk free rate is 6%,<br />
what is the portfolio’s required rate of return?<br />
500,000/5,000,000 (1.25) + 75,000/5,000,000(-0.60) +<br />
1,425,000/5,000,000 (1.5) + 3,000,000/5,000,000(0.95)<br />
= portfolio beta<br />
r= 6 + (14-6)(portfolio beta)<br />
answer= required rate of return.
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