Assume that you hold a diversified $90,000 portfolio with a beta of 1.20, and that you are in the process of buying 1,000 shares of a high-tech stock at $10 a share with a beta of 1.70, and adding it to this portfolio. Also assume that risk-free rate is 2%, and that the expected rate of return on the market is 10.2%. Based on the CAPM, what would be the expected rate of return for your portfolio after the purchase of this stock?
Assume that you hold a diversified $90,000 portfolio with a beta of 1.20, and that you are in the process of buying 1,000 shares of a high-tech stock at $10 a share with a beta of 1.70, and adding it to this portfolio. Also assume that risk-free rate is 2%, and that the expected rate of return on the market is 10.2%. Based on the CAPM, what would be the expected rate of return for your portfolio after the purchase of this stock?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Assume that you hold a diversified $90,000 portfolio with a beta of 1.20, and that you are in the process of
buying 1,000 shares of a high-tech stock at $10 a share with a beta of 1.70, and adding it to this portfolio.
Also assume that risk-free rate is 2%, and that the expected rate of return on the market is 10.2%. Based
on the CAPM, what would be the expected rate of return for your portfolio after the purchase of this stock?
Your answer should be between 7.45 and 16.30, rounded to 2 decimal places, with no special characters.
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