A Mutual Fund Manager Has a $40 Million Portfolio with a Beta

question 43

Multiple Choice

A mutual fund manager has a $40 million portfolio with a beta of 1.00.The risk-free rate is 4.25%,and the market risk premium is 6.00%.The manager expects to receive an additional $60 million which she plans to invest in additional stocks.After investing the additional funds,she wants the fund's required and expected return to be 13.00%.What must the average beta of the new stocks be to achieve the target required rate of return?

• A)1.68
• B)1.76
• C)1.85
• D)1.94
• E)2.04

---

Definitions:

Reconciliation

The process of ensuring that two sets of records (usually the balances of two accounts) are in agreement.

Direct Method

The Direct Method in accounting is a way to present the cash flow statement, showing actual cash receipts and payments, directly reporting major classes of gross cash receipts and payments.

Accrual Accounts

Accounts that record revenues and expenses when they are earned or incurred, not necessarily when cash is received or paid.

Accrual Accounting

An accounting method where revenue and expenses are recorded when they are earned or incurred, regardless of when cash transactions occur.