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Sean-Ruben manage a $10.00 million mutual fund which has a beta of 1.05 and a 9.50%...

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Finance

Sean-Ruben manage a $10.00 million mutual fund which has abeta of 1.05 and a 9.50% required return. The risk-free rate is4.20%. Sean-Ruben now receives another $5.00 million, which heinvests in stocks with an average beta of 0.65.   What is the required rate of return on the new portfolio? (Hint:You must first find the market risk premium, then find the newportfolio beta.)

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3.8 Ratings (359 Votes)
Information provided Proportion of debt 65 Proportion of equity 35 Cost of debt 9 Information provided Amount invested in old portfolio 10 million Amount invested in addition to the portfolio    See Answer
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Sean-Ruben manage a $10.00 million mutual fund which has abeta of 1.05 and a 9.50% required return. The risk-free rate is4.20%. Sean-Ruben now receives another $5.00 million, which heinvests in stocks with an average beta of 0.65.   What is the required rate of return on the new portfolio? (Hint:You must first find the market risk premium, then find the newportfolio beta.)

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