Your Mother's Well-Diversified Portfolio Has an Expected Return of 12 $\quad\underline{\text {Ip}}\quad\quad\underline{\text {bp}}$

question 23

Short Answer

Your mother's well-diversified portfolio has an expected return of 12.0% and a beta of 1.20.She is in the process of buying 100 shares of Safety Corp.at $10 a share and adding it to her portfolio.Safety 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 Safety stock?
$\quad\underline{\text {Ip}}\quad\quad\underline{\text {bp}}$
a. $11.69 \% ; 1.22$
b. $12.30 \% ; 1.28$
c. $12.92 \% ; 1.34$
d. $13.56 \% ; 1.41$
e. $14.24 \% ; 1.48$

---

Definitions:

CPI-Measured Inflation Hedge

An investment or asset that is expected to increase in value at a rate that matches or exceeds the rate of inflation as measured by the Consumer Price Index (CPI), thus preserving purchasing power.

TIPS

Treasury Inflation-Protected Securities, a type of U.S. Treasury bond designed to help investors protect against inflation.

Fully-Funded Pension Funds

Pension plans that have sufficient assets to meet all the pension obligations to participants, both present and anticipated.

Inflation Hedge

An investment that is considered to protect against the decrease in purchasing power due to inflation.