mother's holds well-diversified portfolio has an expected return of 12.0% and a beta of 1.20 She is in the process of buying 100 shares of Safety Corpat $10 a share and adding it to her portfolio Safety 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 Safety 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

The expected return and beta of the new portfolio are calculated by taking the weighted average of the returns and betas of the existing portfolio and the new investment. The new investment is $1,000 (100 shares at $10 each), making the total portfolio value $10,000. The expected return is (0.9 * 12% + 0.1 * 15%) = 12.3%, and the beta is (0.9 * 1.20 + 0.1 * 2.00) = 1.28.

Mother's Holds Well-Diversified Portfolio Has an Expected Return of 12