Question

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. 11.76%; 1.29 b. 10.64%; 1.17 c. 12.97%; 1.42 d. 12.35%; 1.36 e. 11.20%; 1.23

Answer 1

e. 11.20%; 1.23

Step-by-step explanation:

The computation of the expected return and the beta is shown below

For expected return

= ($10,000 ÷ ($10,000 + $90,000) × 13%) + (0.9 × 11%)

= ($10,000 ÷ $100,000 × 13%) + (0.9 × 11%)

= (0.1 × 13%) + (0.9 × 11%)

= 11.20%

And, the beta is

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

= 1.23