Assignment Paper

FOR THIS week Assignment, you will submit your written answers to questions and calculated

answers to problems on an Excel spreadsheet using formulas for your calculations. I will be

downloading the spreadsheet to review the formulas in the cells of your answers.

The weekly assignment should have an APA title page, an APA reference page, and in-text citations.

Chapter 8

Question 8-4

Problem 8-2

Problem 8-7

Problem 8-17

QUESTION

8-4 Is it possible to construct a portfolio of real-world stocks that has a required return equal to the

risk-free rate? Explain.

PROBLEMS

8-2 PORTFOLIO BETA An individual has $20,000 invested in a stock with a beta of 0.6 and another

$75,000 invested in a stock with a beta of 2.5. If these are the only two investments in her portfolio,

what is her portfolio’s beta?

8-7 PORTFOLIO REQUIRED RETURN Suppose you are the money manager of a $4.82 million

investment fund. The fund consists of four stocks with the following investments and betas:

STOCK Investment Beta

A $ 460,000 1.50

B 500,000 (0.50)

C 1,260,000 1.25

B 2,600,000 0.75

If the market’s required rate of return is 8% and the risk-free rate is 4%, what is the fund’s required

rate of return.

8-17 PORTFOLIO BETA A mutual fund manager has a $20 million portfolio with a beta of 1.7.

The risk-free rate is 4.5%, and the market risk premium is 7%. The manager expects to receive an

additional $5 million, which she plans to invest in a number of stocks. After investing the additional

funds, she wants the fund’s required return to be 15%. What should be the average beta of the new

stocks added to the portfolio?