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

Distinguish between the cost method, equity method, and fair value models for accounting investments.

Identify the implications of significant influence and control in relation to investment accounting.

Comprehend how an investment's carrying amount is affected under different accounting methods.

Understand the role of associate and subsidiary companies in investment accounting.

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Definitions:

Account Balances

The amounts of money present in an account at a particular moment, reflecting all transactions.

Long-term Notes Payable

Loans or credit lines that are to be repaid over a period longer than one year.

Cash

Liquid assets comprising currency or currency equivalents that can be accessed immediately or near-immediately (as in the case of money market accounts).

Total Assets

The sum of all resources owned by a company, valued in terms of monetary units, which can be used to produce value for the company.