resubmit question for the 2nd time: still coming up not correct: CAPM and portfolio return
QUESTION
You have been managing a $5 million portfolio that has a beta of 1.40 and a required rate of return of 14%. The current risk-free rate is 6.25%. Assume that you receive another $500,000. If you invest the money in a stock with a beta of 1.75, what will be the required return on your $5.5 million por
Portfolio beta with new stock = (5mil/5.5mil)x1.4 (0.5/5.5mil)x1.75 =1.431818 Solving for Market Risk Premium Required Rate of Return= Riskfree rate (MarketRisk Premium)Beta 14 = 6.25 (MarketRisk Premium)1.40 Market Risk
Premium = 5.535714 Required Return on 5.5mil Portfolio = Riskfree rate (MarketRisk Premium)Beta = 6.25 (5.535714)1.431818 =14.17613 =14.18% (2DP)
ANSWER:
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