Joel Foster is the portfolio manager of the SF Fund, a $3 million hedge fund that contains the following stocks. The required rate of return on the market is 11.00% and the risk-free rate is 5.00%. What rate of return should investors expect (and require) on this fund?

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Answer:

Stock A at an amount of $1075000 at beta of 1.2

Stock B at an amount of $675000 at Beta of 0.5

Stock C at an amount of $750000 at beta of 1.4

Stock D at an amount of $500000 at beta of 0.75