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 RETURNSuppose 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?
