## Portfolio Required Return

#### Portfolio Required Return

You are the money manager of a \$10 million investment fund, which consists of four stocks. This fund has the following investments and betas:

If the market’s required rate of return is 12 percent, and the risk-free rate is 4 percent, what is the fund’s required rate of return?

The required rate of return (RRR) is the minimum return an investor will accept for owning a company’s stock, as compensation for a given level of risk associated with holding the stock. The RRR is also used in corporate finance to analyze the profitability of potential investment projects

## Bond Valuation

#### Bond Valuation

You have two bonds in your portfolio. Each bond has a face value of \$1000 and pays an 8 percent annual coupon. Bond X matures in 1 year, and Bond Y matures in 15 years.

1. If the going interest rate is 4 percent, 9 percent, and 14 percent, what will the value of each bond be? Assume Bond X only has one more interest payment to be made at maturity. Assume there are 15 more payments to be made on Bond Y.
2. The longer-term bond’s price varies more than the shorter-term bond‘s price when interest rates change. Explain why.