You hold a diversified portfoilio consisting $95,000 of common stocks. The portfolio beta is equal to 1.15. It has an expected return of 10%. You are going to buy $5,000 of stock in a steel company whose beta is 2.0. Stocks for this steel company are expected to have a return of 16%.
a. What will be the expected return of your portfolio after the purchase of the steel stocks?
b. What will be the beta for your portfolio after the purchase of the steel stocks?
c. Assume that the risk-free rate is 6% and the expected market return is 13%. what is the portfolio's required rate of return after the purchase of the steel stocks?