You have been asked by the director of finance to put together a plan to invest...

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Finance

You have been asked by the director of finance to put together aplan to invest in other companies. Your plan will manage a mutualfund with a $20 million portfolio with a beta of 1.50. Assume thatthe risk-free rate is 4.50%, and the market risk premium is 5.50%.You expect to receive an additional $5 million, which you plan toinvest in a number of stocks. After investing the additional funds,you want the fund’s required return to be 13%. What must theaverage beta of the new stocks added to the portfolio be to achievethe desired required rate of return? Attach your Excel file showingyour calculations. In a Word document, explain the steps you usedto arrive at your answers. What does your calculated beta mean toUPC? Should UPC be concerned about the use of betas in makinginvestment decisions?

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4.4 Ratings (550 Votes)

As per CAPM model expected return risk free rate betamarket risk premiumOr 13 45 beta55Or 85 beta55or beta 8555 1545455We know that See Answer

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You have been asked by the director of finance to put together aplan to invest in other companies. Your plan will manage a mutualfund with a $20 million portfolio with a beta of 1.50. Assume thatthe risk-free rate is 4.50%, and the market risk premium is 5.50%.You expect to receive an additional $5 million, which you plan toinvest in a number of stocks. After investing the additional funds,you want the fund’s required return to be 13%. What must theaverage beta of the new stocks added to the portfolio be to achievethe desired required rate of return? Attach your Excel file showingyour calculations. In a Word document, explain the steps you usedto arrive at your answers. What does your calculated beta mean toUPC? Should UPC be concerned about the use of betas in makinginvestment decisions?