Michael holds a portfolio that has an expected return of 11.0%, a total value of $90,000, and a beta of 1.20. He is in the process of buying $10,000 worth of TTR stock and adding it to his portfolio. TTR has an expected return of 13.0% and a beta of 1.50. What will the beta of the portfolio be after the purchase of the TTR stock?
Risk and return
Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.
Capital Asset Pricing Model
Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.
Michael holds a portfolio that has an expected return of 11.0%, a total value of $90,000, and a beta of 1.20. He is in the process of buying $10,000 worth of TTR stock and adding it to his portfolio. TTR has an expected return of 13.0% and a beta of 1.50. What will the beta of the portfolio be after the purchase of the TTR stock?
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