So they know what do when they fight back or attack
The required rate of return for the Global Investment Fund is 14.06%
Explanation:
Stock Investment Beta
A $200,000 1.50
B $300,000 -0.50
C $500,000 1.25
D $1,000,000 0.75
Total 2,000,000
First Calculate the portfolio Beta
Portfolio bet is the average beta calculated on the basis of weightage of each investment. The beta of every investment is multiplied with the weightage of each investment in a portfolio. The all the value is added to get the portfolio beta
Portfolio Beta = ( 1.5 x 200,000 / 2,000,000 ) + ( -0.50 x 300,000 / 2,000,000) + ( 1.25 x 500,000 / 2,000,000 ) + ( 0.75 x 1,000,000 / 2,000,000 )
Portfolio Beta = 0.15 - 0.075 + 0.3125 + 0.375
Portfolio beta = 0.7625
Required rate of return
Capital asset pricing model measure the expected return on an asset or investment. it is used to make decision for addition of specific investment in a well diversified portfolio.
Formula for rate of return
Expected return = Risk free rate + beta ( market risk premium )
Expected return = Risk free rate + beta ( Market return - Risk free rate )
Use portfolio beta here
Expected return = 3% + 0.7625 ( 17.50% - 3% )
Expected return = 14.06%