Joel Foster Is the Portfolio Manager of the SF Fund,a

question 238

Multiple Choice

Joel Foster is the portfolio manager of the SF Fund,a $3 million hedge fund that contains the following stocks.The required rate of return on the market is 11.00% and the risk-free rate is 5.00%.What rate of return should investors expect (and require) on this fund? $$\begin{array}{l}\begin{array} { c c c } \text { Stock } & \text { Amount } & \text { Beta } \\ \text { A } & \$ 1,075,000 & 1.20 \\B & 675,000 & 0.50 \\C & 750,000 & 1.40 \\\text { D } & 500,000 & 0.75\end{array}\\\quad\quad\quad\quad\underline{\$ 3,000,000}\end{array}$$

• A)10.56%
• B)10.83%
• C)11.11%
• D)11.38%
• E)11.67%

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Definitions:

External Financing Needed

The additional funds a company requires from external sources to finance its planned activities or growth when internal cash flows are insufficient.

Profit Margin

A measure of profitability calculated as net income divided by revenues, expressed as a percentage.

Capital Intensity Ratio

A metric that measures the amount of assets required to generate one dollar of revenue; the higher the ratio, the more capital-intensive the business.

Dividend Payout Ratio

The fraction of net earnings a firm pays to its shareholders as dividends, expressed as a percentage of the company’s total net income.