3. (15 Percent) Assume that you are the portfolio manager of the YTT Fund, a $5 million hedge fund that contains the following stocks. The required rate of return on the market is 12.00% and the risk-free rate is 4.50%. Stock A B с D E Amount $850,000 $650,000 $1,500,000 $800,000 $1,200,000 $5,000,000 Beta 1.5 0.8 1.3 0.6 1.2 a. What rate of return should investors expect (and require) on this fund and what is the beta of this fund? b. The investors require you to reduce the risk of the fund and thus you plan to cut the investment in Stock C by $500,000 and add $500,000 to stock B. What will the fund's required rate of return be after this change?

3. (15 Percent) Assume that you are the portfolio manager of the YTT Fund, a $5 million hedge fund that contains the following stocks. The required rate of return on the market is 12.00% and the risk-free rate is 4.50%. Stock A B с D E Amount $850,000 $650,000 $1,500,000 $800,000 $1,200,000 $5,000,000 Beta 1.5 0.8 1.3 0.6 1.2 a. What rate of return should investors expect (and require) on this fund and what is the beta of this fund? b. The investors require you to reduce the risk of the fund and thus you plan to cut the investment in Stock C by $500,000 and add $500,000 to stock B. What will the fund's required rate of return be after this change?

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter2: Risk And Return: Part I

Section: Chapter Questions

Problem 10P

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