Assume that you hold a well-diversified portfolio that has an expected return of 11.0% and a beta of 1.20. You are in the process of buying 1,000 shares of Alpha Corp at $10 a share and adding it to your portfolio. Alpha has an expected return of 21.5% and a beta of 1.70. The total value of your current portfolio is $90,000. What will the expected return and beta on the portfolio be after the purchase of the Alpha stock? Do not round your intermediate calculations.

Question

Business

Rhianna Rivera

1 May, 01:14

Assume that you hold a well-diversified portfolio that has an expected return of 11.0% and a beta of 1.20. You are in the process of buying 1,000 shares of Alpha Corp at $10 a share and adding it to your portfolio. Alpha has an expected return of 21.5% and a beta of 1.70. The total value of your current portfolio is $90,000. What will the expected return and beta on the portfolio be after the purchase of the Alpha stock? Do not round your intermediate calculations.

+4

Answers (1)

Know the Answer?

Patricia Dorsey · Answer 1

Investment value in alpha = $10,000

Weight of alpha in total investment = 10%

Expected return:

= 11%*0.90+21.5%*0.10

= 12.05%

Beta of portfolio:

= 1.2*0.90+1.7*0.10

= 1.08 + 0.17

=1.25