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10 March, 08:49

Calculate the portfolio required rate of return (rs) for the Wagner Assets Management Group, which holds 4 stocks. The expected market return is 13.0%, the risk-free rate is 5.0%, and the Fund's assets are show below. Hint: You must first calculate the stock weights and portfolio beta. Stock Investment Beta A $ 200,000 1.50 B 300,000 - 0.50 C 500,000 1.25 D 1,000,000 0.75 a. 12.30% b. 10.00% c. 9.00% d. 13.10% e. 11.10%

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  1. 10 March, 09:12
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    11.10%

    Explanation:

    For computing the portfolio required rate of return first we have to calculate the portfolio beta which is shown below:

    Portfolio Beta = Beta of Stock A * Weight of Stock A + Beta of Stock B * Weight of Stock B + Beta of Stock C * Weight of Stock C + Beta of Stock D * Weight of Stock D

    = 1.50 * $200,000 : ($200,000 + $300,000 + $500,000 + $1,000,000) 0-.50 * $300,000 : ($200,000 + $300,000 + $500,000 + $1,000,000) + 1.25 * $500,000 : ($200,000 + $300,000 + $500,000 + $1,000,000) + 0.75 * $1,000,000 : ($200,000 + $300,000 + $500,000 + $1,000,000)

    =.7625

    Now the portfolio Required Rate of Return is

    Required Rate of Return = Risk Free Rate + Beta * (Market Rate of Return - Risk Free Rate)

    = 5% +.7625 * (13% - 5%)

    = 11.10%

    We simply applied the above formulas
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