Ivan Knobel holds a well-diversified portfolio that has an expected return of 11.0% and a beta of 1.20.He is in the process of buying 1,000 shares of Syngine Corp at $10 a share and adding it to his portfolio.Syngine has an expected return of 13.0% and a beta of 1.50.The total value of Ivan's current portfolio is $90,000.What will the expected return and beta on the portfolio be after the purchase of the Syngine stock?
A) 10.64%; 1.17
B) 11.20%; 1.23
C) 11.76%; 1.29
D) 12.35%; 1.36
E) 12.97%; 1.42

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 portfolio value is $100,000 ($90,000 + $10,000). The expected return is (0.9 * 11% + 0.1 * 13%) = 11.20%. The beta is (0.9 * 1.20 + 0.1 * 1.50) = 1.23.

Ivan Knobel Holds a Well-Diversified Portfolio That Has an Expected