Question

The current value of your portfolio is $850,000 with an expected return of 1.5% and a beta of 1.1.

You are adding 15,000 shares Neuvo Inc. at at a current market value of $150,000 to your portfolio.

Neuvo Inc.  has an expected return of 3.0% and a beta of 1.2.

Calculate the portfolio's REQUIRED return if the T- bill is returning 1.3% and the market return is 2%.

Answer 1

E(r) = [Wi x Ri]

= [{$850,000 / ($850,000 + $150,000)} x 1.5%] + [{$150,000 / ($850,000 + $150,000)} x 3%]

= 1.28% + 0.45% = 1.73%