4)Suppose you hold a diversified portfolio consisting of a $7,500 investment in

Question

4)Suppose you hold a diversified portfolio consisting of a $7,500 investment in each of 20 different common stocks. The portfolio's beta is 1.15. Now, suppose you sell one of the stocks with a beta of 1.0 for $7,500 and use the proceeds to buy another stock whose beta is 1.55. Calculate your portfolio's new beta. Round your answer to two decimal places.

5)Suppose you manage a $5.465 million fund that consists of four stocks with the following investments:
Stock Investment Beta
A $440,000 1.50
B 575,000 -0.50
C 1,500,000 1.25
D 2,950,000 0.75
If the market's required rate of return is 11% and the risk-free rate is 3%, what is the fund's required rate of return? Round your answer to two decimal places.
%

6)Stock R has a beta of 1.5, Stock S has a beta of 0.40, the expected rate of return on an average stock is 12%, and the risk-free rate is 5%. By how much does the required return on the riskier stock exceed the required return on the riskier stock exceed that on the less risky stock? Round your answer to two decimal places.
%

Explanation / Answer

i have given same question below, you only need to change figure according to your question. please RATe

Q: Suppose you hold a diversified portfolio consisting of a $7,500 investment in each of 20 different common stocks. The portfolio beta is equal to 1.12. Now, suppose you have decided to sell one of the stocks in your portfolio with a beta equal to 1.0 for $7,500 and to use these proceeds to buy another stock for your portfolio. Assume the new stock's beta is equal to 1.75. Calculate your portfolio's new beta.

solution
The beta of the portfolio is the weighted average of the individual asset betas where
the weights are the portfolio weights.
To get portfolio beta we will replace 1 stock of 20 or 5% of the portfolio. The other
stocks are 95% of the portfolio.
1.12 = .95 * b +.05*1
b= 1.126316
So not when we replace one and get other stock
Portfolio beta = .95*1.126316 + .05*1.75
=1.1575

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