Question: (12 points, 15 minutes) Problem 9 A portfolio manager is holding the following investments Stock Amount Invested X $10 million Y $20 million z $40

(12 points, 15 minutes) Problem 9 A portfolio manager is holding

(12 points, 15 minutes) Problem 9 A portfolio manager is holding the following investments Stock Amount Invested X $10 million Y $20 million z $40 million Beta 1.4 1.0 0.8 a. The risk-free rate is 5 percent, and the market risk premium is 5.5%. What is the required rate of return of the portfolio? (6 points) b. The manager plans to sell his holdings of stock Y. The money from the sale will be used to purchase another $15 million of stock X and another $5 million of Stock Z. The risk-free rate is 5 percent, and the market risk premium is 5.5%. What is the new beta and the required rate of return of the portfolio? (6 points)

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