Unformatted text preview: slope of the SML remains constant. How would this affect rm and ri? c) Now assume rf remains at 9% but rm (1) increases to 16% or (2) falls to 13%. The slope of the SML does not remain constant. How would these changes affect ri? (5) Suppose you are the money manager of a $4 million investment fund. The fund consists of 4 stocks with the following investments and betas: Stock Investment Beta A 400,000 1.50 B 600,000 (0.50) C 1,000,000 1.25 D 2,000,000 0.75 If the market required rate of return is 14% and the risk-free rate is 6%, what is the fund’s required rate of return? (6) Stock R has a beta of 1.5, Stock S has a beta of 0.75, the expected rate of return on an average stock is 13%, and the risk-free rate of return is 7%. By how much does the required return on the riskier stock exceed the required return on the less risky stock?...
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- Spring '08
- Probability theory, risk-free rate