Consider the following information, and then calculate the required rate of return for the Scientific Investment Fund

Finance Sep 11, 2020

Consider the following information, and then calculate the required rate of return for the Scientific Investment Fund. The total investment in the fund is R2 million. The market required rate of return is 15 percent, and the risk-free rate is 7 percent.

Share Investment Beta

1 R 200,000 1.50

2 300,000 -0.50

3 500,000 1.25

4 1,000,000 0.75

Expert Solution

Computation of the required rate of return:-

Required rate of return = Risk free rate + Beta * (Market return - Risk free rate)

= 7% + 0.76 * (15% - 7%)

= 7% + (0.76 * 8%)

= 7% + 6.1%

= 13.1%

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