Problem:
Your portfolio is diversified. It has an expected return of 11.0% and a beta of 1.10. You want to add 300 shares of Kraft Foods Inc at $40 a share to your portfolio. Kraft Foods Inc has an expected return of 9.0% and a beta of 0.80. The total value of your current portfolio without Kraft is $45,000.
Required:
Question 1: Calculate the expected return on the portfolio after the purchase of the Kraft Foods Inc's stock?
Note: Provide support for your rationale.