Assume That You Hold a Well-Diversified Portfolio That Has an Expected

question 31

Multiple Choice

Assume that you hold a well-diversified portfolio that has an expected return of 11.0% and a beta of 1.20.You are in the process of buying 1,000 shares of Alpha Corp at $10 a share and adding it to your portfolio.Alpha has an expected return of 22.5% and a beta of 1.20.The total value of your current portfolio is $90,000.What will the expected return and beta on the portfolio be after the purchase of the Alpha stock? Do not round your intermediate calculations.

• A) 11.42%;1.04
• B) 11.54%;1.26
• C) 15.07%;1.33
• D) 12.15%;1.20
• E) 13.97%;0.97

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Definitions:

Mental Links

The connections between concepts, ideas, or pieces of information stored in memory.

Concepts

General ideas or understandings that individuals have about something, which are used to categorize and interpret information.

Schema's Tendency

The propensity of cognitive schemas, which are frameworks for understanding the world, to influence perception and memory in a consistent direction.

Salience

The quality of being particularly noticeable or important; something that stands out in a person's perception or attention.