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A mutual fund manager expects her portfolio to earn a rate of return of 14% this year. The beta of her portfolio is 0.9. The rate of return available on risk-free assets is 6% and you expect the rate of return on the market portfolio to be 16%. What expected rate of return would you demand before you would be willing to invest in this mutual fund?

Respuesta :

Answer:

15%

Explanation:

In this question, we apply the Capital Asset Pricing Model (CAPM) formula which is shown below

Expected rate of return = Risk-free rate of return + Beta × (Market rate of return - Risk-free rate of return)

= 6% + 0.9 × (16% - 6%)

= 6% + 0.9 × 10%

= 6% + 9%

= 15%

Since the expected rate of return is 15% and its expected to earn is 14%. So, the expected or minimum rate of return is 15%

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