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 13.0% and a beta of 1.50. 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? 10.64%; 1.17 11.20%; 1.23 11.76%; 1.29 12.35%; 1.36 12.97%; 1.42

New portfolio return = 11.2%

New portfolio beta = 1.23

Explanation:

The total valuw of investment in new portfolio will be = 90000 + 1000*10 = $100000

The weight of Alpha stock in new portfolio will be = 10000 / 100000 = 0.1 or 10%.

The expected return of the new portfolio will be,

Return of Portfolio = 9/10 * 0.11 + 1/10 * 0.13 = 0.112 or 11.2%

The new portfolio beta will be,

Portfolio beta = 9/10 * 1.2 + 1/10 * 1.5 = 1.23

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