Question

15. Ivan Knobel holds a well-diversified portfolio that has an expected return of 11.0%, a total value of $90,000, 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 1.50. What will the beta on the portfolio be after the purchase of the Syngine stock?a. 1.17b. 1.29c. 1.36d. 1.42e. 1.23

Answer 1

e. 1.23

Step-by-step explanation:

As we know that

Old investment = $90,000

And, the new investment = 1,000 shares × $10 = $10,000

So, the total investment = $90,000 + $10,000 = $100,000

Now the beta would equal to

= (New investment ÷ total investment) × new beta + old investment ÷ total investment) × new beta

= ($10,000 ÷ $100,000) × 1.50 + ($90,000 ÷ $100,000) × 1.20

= 0.15 + 1.08

= 1.23