Problemassume that the risk-free rate is 55 percent and the, Ask an Expert

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Problem:

Assume that the risk-free rate is 5.5 percent and the market risk premium is 6 percent. A money manager has $10 million invested in a portfolio that has a required return of 12 percent. The manager plans to sell $3 million of stock with a beta of 1.6 that is part of the portfolio. She plans to reinvest this $3 million into another stock that has a beta of 0.7.

Task:

Question: If she goes ahead with this planned transaction, what will be the required return of her new portfolio? (Hint: What is the portfolio's current beta? What is the beta of the remaining stocks in the portfolio?)

Note: Provide support for rationale.

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M91172917

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