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

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Definitions:

Managers

Individuals in an organization responsible for directing and overseeing the work of a group of people toward the achievement of goals.

Hawthorne Studies

A series of studies conducted in the early 20th century focusing on worker productivity, leading to insights on the importance of social relations and worker attention.

Compensation

Payment or benefits provided to employees in exchange for their labor or services.

Hawthorne Studies

A series of experiments conducted to examine how different conditions affect worker productivity, highlighting the importance of social relations and worker satisfaction.