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You have been asked by the director of finance to put together a plan to invest in other companies. Your plan will manage a mutual fund with a $20 million portfolio with a beta of 1.50. Assume that the risk-free rate is 4.50%, and the market risk premium is 5.50%. You expect to receive an additional $5 million, which you plan to invest in a number of stocks. After investing the additional funds, you want the fund's required return to be 13%.

• What must the average beta of the new stocks added to the portfolio be to achieve the desired required rate of return? Attach your Excel file showing your calculations.

• In a Word document, explain the steps you used to arrive at your answers.

• What does your calculated beta mean to UPC?

• Should UPC be concerned about the use of betas in making investment decisions?

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Financial Management, Finance

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