Hello!

I've been working on the problem below as shown on the image pasted. I feel okay with my calculations for part a & b of the question. However, I'm struggling with part c. I'm not sure if I understand the question and how to use the inputs provided in the question for part c. I also don't really know what to do with the correlation of .3, can you help me and show me the steps I need to take to calculate it? Here's how I've calculated what I have so far for part c:

Part C asks how does your answer to part a change if the debt is risky, has returns with a mean of 7%, has a standard deviation of 10%, and beta of .2, and has correlation of .3. I really wasn't sure how to approach this question. What I did was take 6/(6=4)*7%+4/(6+4)*12% which gave me 9%. I then calculated Beta as 6/(6+4)*.2+4/(6+4)*.9 to get 0.48. However, I don't know what else I'm supposed to do.

My answers for a:

Mean Return = 8.4%

Beta = 0.36

Stdv = 0.12

My answer for b:

Mean Return Portfolio = 12.67%

My answer for c:

Mean Return of 7% increases to = 9% return

New Beta = 0.48

5.11. The Alumina Corporation has the following simplified balance sheet (based on market values) Assets Liabilities and Equity Debt $10 billion $6 billion Common Stock $4 billion a. The debt of Alumina, being risk-free, earns the risk-free return of 6 percent per year. The equity of Alumina has a mean return of 12 percent per year, a standard deviation of 30 percent per year, and a beta of 9. Compute the mean return, beta, and standard deviation of the assets of Alumina. Hint: View the assets as a portfolio of the debt and equity. b. If the CAPM holds, what is the mean return of the market portfolio? c. How does your answer to part a change if the debt is risky, has returns with a mean of 7 percent, has a standard deviation of 10 percent, a beta of 2, and has a correlation of .3 with the return of the common stock of Alumina