Assume that you hold a well-diversified portfolio that has an expected return of 12.0% and a beta of 1.20. You are in the process of buying 100 shares of Alpha Corp at $10 a share and adding it to your portfolio. Alpha has an expected return of 15.0% and a beta of 2.00. The total value of your current portfolio is $9,000. What will the expected return and beta on the portfolio be after the purchase of the Alpha stock? rp bp
A) 11.69%; 1.22
B) 12.30%; 1.28
C) 12.92%; 1.34
D) 13.56%; 1.41
E) 14.24%; 1.48

Question

Quizplus · Accepted Answer

First, we need to calculate the total value of the portfolio after the purchase of the Alpha stock:

100 x $10 = $1,000 (value of Alpha stock added)

$9,000 + $1,000 = $10,000 (new total portfolio value)

Next, we need to calculate the expected return and beta of the portfolio after the purchase:

Expected return:

(0.12 x $9,000 + 0.15 x $1,000) / $10,000 = 0.123 = 12.30%

Beta:

(1.20 x $9,000 + 2.00 x $1,000) / $10,000 = 1.28

Therefore, the expected return and beta on the portfolio after the purchase of the Alpha stock will be 12.30% and 1.28, respectively. Option B is the correct answer.

Assume That You Hold a Well-Diversified Portfolio That Has an Expected