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27 November, 02:51

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?

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  1. 27 November, 03:16
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    Expected return of portfolio = 12.3%

    Beta of portfolio = 1.28

    Explanation:

    investment value in alpha = 100*10 = $1000

    Total value of portfolio = 9000 + 1000 = $10000

    The expected return and beta would be the weighted average.

    Expected return of portfolio = 9000/10000 * 12% + 1000/10000 * 15%

    Expected return of portfolio = 12.3%

    Beta of portfolio = 9000/10000 * 1.20 + 1000/10000 * 2

    Beta of portfolio = 1.28
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