A Mutual Fund Manager Has a $20 Million Portfolio with a Beta

question 133

Multiple Choice

A mutual fund manager has a $20 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 $25.50 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)1.73
• B)1.82
• C)1.91
• D)2.00

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Definitions:

Raw Materials

Raw Materials are the basic substances or components that are converted through manufacturing processes into finished goods.

Raw Materials Inventory

Items and supplies held in stock that are used in the manufacturing process to create finished goods.

Materials Quantity Variance

This variance measures the difference between the actual quantity of material used in production and the standard quantity allowed, multiplied by the standard cost per unit of material.

Direct Labor Costs

Expenses related to employees who directly produce a product or provide a service, such as wages for assembly line workers.