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

Understand the financial impact of disposing of assets, including recognizing gains or losses.

Recognize the importance of residual value and useful life in calculating depreciation.

Comprehend the treatment of natural resources and the concept of depletion.

Understand the concept of intangible assets and their amortization.

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Definitions:

Component Cost

Component cost refers to the cost associated with each separate element or 'component' in the process of calculating a company's Weighted Average Cost of Capital (WACC).

Debt Issue

The act of a company raising money through the sale of bonds or other fixed-income securities.

Tax Rate

The percentage at which an individual or corporation is taxed. The tax rate may vary based on income level, type of income, or other factors.

IOS

Stands for Input/Output System or alternatively, iOS, Apple Inc.'s mobile operating system used for its iPhones and iPads, depending on context.