A money manager is holding the following portfolio: Stock Amount Invested Beta 1 $400,000 1.00 2 600,000 0.85 3 300,000 1.20 4 500,000 0.50 5 200,000 1.70 The risk-free rate is 7 percent and...

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Finance

A money manager is holding thefollowing portfolio:
           Stock       AmountInvested        Beta
           1            $400,000          1.00
           2            600,000          0.85
           3            300,000          1.20
           4            500,000          0.50
           5            200,000          1.70
      Therisk-free rate is 7 percent and the portfolio’s required rate ofreturn is 13.975 percent. The manager would like to sell all of herholdings of Stock 4 and use half the proceeds to purchase moreshares of Stock 5, and the other half of the proceeds to purchasemore shares of Stock 3. (6 points)
What is the beta of the current portfolio?
What is the beta of the new portfolio?
What would be the portfolio’s required rate of return followingthis change?

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a Current portfolio beta Portfolio Beta Weight of stock 1Beta of stock 1 Weight of stock 2Beta of stock 2 Weight of stock 3Beta of stock 3 Weight of stock 4Beta of stock 4 Weight of stock 5Beta of stock 5 Calculation of weight for each stock Stock Amount See Answer

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A money manager is holding thefollowing portfolio: Stock AmountInvested Beta 1 $400,000 1.00 2 600,000 0.85 3 300,000 1.20 4 500,000 0.50 5 200,000 1.70 Therisk-free rate is 7 percent and the portfolio’s required rate ofreturn is 13.975 percent. The manager would like to sell all of herholdings of Stock 4 and use half the proceeds to purchase moreshares of Stock 5, and the other half of the proceeds to purchasemore shares of Stock 3. (6 points)What is the beta of the current portfolio?What is the beta of the new portfolio?What would be the portfolio’s required rate of return followingthis change?