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Calculate Portfolio’s performance using Beta

QUESTIONS :

Your portfolio is diversified .  It  has an expected return of 10.0% and a beta of 1.10.  You want  to add 200 shares of Tundra Corporation at $30 a share to your portfolio.  Tundra has an expected return of 14.0% and a beta of 1.50.  The total value of the investor’s current portfolio is $18,000. 

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 add the new stock?

c.  Is your portfolio  less risky or more risky than average?  Explain.

d.  Will your portfolio likely outperform or underperform the market in a period when stocks are rapidly falling in value?

e.   Is beta always an accurate predictor of a portfolio’s performance?  Explain?

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