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Your portfolio is diversified. It has an expected return of 10.0% and a beta of .95. You want to add 500 shares of Tundra Corporation at $40 a share to your portfolio. Tundra has an expected return of 9.0% and a beta of .75. The total value of the investor's current portfolio is $60,000.
a. Calculate the expected return on the portfolio after the purchase of the Tundra stock?
b. Calculate the expected beta on the portfolio after you have added the new stock?
c. Is your portfolio less risky or more risky than the market? Explain.
d. Will your portfolio likely outperform or underperform the market in a period when stocks are rapidly falling in value? Explain.
e. Is beta always an accurate predictor of a portfolio's performance? Explain?
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