What must the average beta of the new stocks added » Full Grade
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Question – A mutual fund manager has a $300 million portfolio with a beta of 1.25. The risk-free rate is 2.50%, and the market risk premium is 6.00%. The manager expects to receive an additional $75 million which she plans to invest in several different stocks. After investing the additional funds, she wants to reduce the portfolio’s risk level so that once the additional funds are invested the portfolio’s required return will be 9.25%. What must the average beta of the new stocks added to the portfolio be to achieve the desired required rate of return?
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