Question

A mutual fund manager has a $350 million portfolio with a beta of 1.10. The risk-free rate is 3.5%, and the market risk premium is 6.00%. The manager expects to receive an additional $150 million which she plans to invest in several different stocks. After investing the additional funds, she wants to reduce the portfolio’s risk level so that once the additional funds are invested the portfolio’s required return will be 9.20%. What must the average beta of the new stocks added to the portfolio be (not the new portfolio’s beta) to achieve the desired required rate of return?

297

likes
1483 views

Answer to a math question A mutual fund manager has a $350 million portfolio with a beta of 1.10. The risk-free rate is 3.5%, and the market risk premium is 6.00%. The manager expects to receive an additional $150 million which she plans to invest in several different stocks. After investing the additional funds, she wants to reduce the portfolio’s risk level so that once the additional funds are invested the portfolio’s required return will be 9.20%. What must the average beta of the new stocks added to the portfolio be (not the new portfolio’s beta) to achieve the desired required rate of return?

Expert avatar
Cristian
4.7
116 Answers
To find the required beta of the new stocks added to the portfolio, we can use the following formula:

Required\ return = Risk-free\ rate + Beta \times Market\ risk\ premium

Let's solve for the beta by rearranging the formula:

Beta = \frac{Required\ return - Risk-free\ rate}{Market\ risk\ premium}

Given:
Current portfolio beta = 1.10
Risk-free rate = 3.5%
Market risk premium = 6.00%
Required return = 9.20%

Substituting the given values into the formula, we have:

Beta = \frac{9.20\% - 3.5\%}{6.00\%}

Simplifying the expression:

Beta = \frac{5.70\%}{6.00\%}

Converting the percentages to decimal form:

Beta = \frac{0.057}{0.06}

Simplifying further:

Beta \approx 0.95

Answer: The average beta of the new stocks added to the portfolio must be approximately 0.95 to achieve the desired required rate of return of 9.20%.

Frequently asked questions (FAQs)
What is the domain of the trigonometric function f(x) = sin(x) + cos(x) - tan(x) over the interval [0, π/2]?
+
Question: Find the absolute extrema of the function f(x) = x^3 - 6x^2 + 9x on the interval [-2, 5].
+
Math question: What is the value of x in the logarithmic equation log2(x + 1) + log2(x - 3) = 4?
+
New questions in Mathematics
Let the vectors be u=(-1,0,2) , v=(0,2,-3) , w=(2,2,3) Calculate the following expressions a)<u,w> b) &lt;2u- 5v,3w&gt;
1/2x +3 <4x-7
what is 9% of 307
For a temperature range between 177 degrees Celsius to 213 degrees Celsius, what is the temperature range in degrees Fahrenheit.
Use the elimination to find the solution to each linear system. X+y=43 2x-y=20
7273736363-8
what is the annual rate on ​$525 at 0.046​% per day for 3 months?
224 × (6÷8)
3.24 ÷ 82
The points (-5,-4) and (3,6) are the ends of the diameter of the circle calculate subequation
X~N(2.6,1.44). find the P(X<3.1)
Translate to an equation and solve. Let x be the unknown number: What number is 52% of 81.
The annual real property tax liability for a residential property is $4302 and has been paid by the seller in advance of closing. Using the 30-day month/260-day year method what will be the tax proration entry on the settlement statement round to the nearest dollar for a closing on Oct. 26 if the buyer owns the day of closing? a. $3525 credit to the buyer and $777 debit to the seller b. $777 debit to the buyer and $3525 debit to the seller c. $777 credit to the buyer and $777 debit to the seller d. $3525 debit to the buyer and $3525 credit to the seller *Can anyone help with this? I am studying for my real estate exam and am having trouble with some of the calculations :)
Calculate the area of the parallelogram with adjacent vertices (1,4, −2), (−3,1,6) 𝑦 (1, −2,3)
A property sold for $745,000 in a co-brokered transaction. The seller has agreed to pay a 7% commission to the listing firm. The listing firm has agreed to equally split the commission with the selling firm. If the buyer’s broker will receive 8% of the selling firm’s commission, how much commission will the buyer’s broker receive? $14,900 $3725 $$37250 $18625
solve R the following equation 4 x squared - 35 - 9 over x squared is equal to 0
25) Paulo saves R$250.00 per month and keeps the money in a safe in his own home. At the end of 12 months, deposit the total saved into the savings account. Consider that, each year, deposits are always carried out on the same day and month; the annual yield on the savings account is 7%; and, the yield total is obtained by the interest compounding process. So, the amount that Paulo will have in his savings account after 3 years, from the moment you started saving part of your money monthly, it will be A) R$6,644.70. B) R$ 9,210.00. C) R$ 9,644.70. D) R$ 10,319.83. E) R$ 13,319.83
Emile organizes a community dance to raise funds. In addition to paying $300 to rent the room, she must rent chairs at $2 each. The quantity of chairs rented will be equal to the number of tickets sold. She sells tickets for $7 each. How much should she sell to raise money?
5a-3.(a-7)=-3
Let f(x)=-1/2x+5 evaluate f(-6)