Topic: Capital Planning Evaluation Techniques
Assignment Description
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?
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?