Hazel Morrison, a Mutual Fund Manager, Has a $40 Million

question 28

Multiple Choice

Hazel Morrison, 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%.Hazel 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

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Definitions:

IFRS 16

An International Financial Reporting Standard that specifies the principles for recognizing, measuring, presenting, and disclosing leases, primarily affecting lessees by requiring most leases to be reported on the balance sheet.

Manufacturer/Dealer Lessors

Entities that lease out assets they manufacture or sell, as part of their main business operations, to earn income and stimulate demand for their products.

Selling Profit

The financial gain achieved from selling goods or services, calculated as sales revenue minus the cost of goods sold and associated selling expenses.

Initial Direct Costs

Expenses directly associated with acquiring or originating a new loan or lease, including commissions, legal fees, and internal costs that are incremental and directly attributable to the transaction.