Question 7

1. Suppose that Brown is holding an equity portfolio that is worth $500,000 and has a beta of 0.9 from which the expected return is 8% per annum. He would like to purchase $1,200,000 of units in a hedge fund that has a beta of 1.2 from which a return of 15% per annum is expected. Answer the following questions:

   1. The total value of the new portfolio is __________.
   2. The weight in the hedge fund in the new portfolio is __________.
   3. The beta of the new portfolio is __________. (Round to two decimal places.)
   4. The expected return of the new portfolio is __________%.
   5. The addition of the hedge fund __________ (has or has not) improved the overall risk-return profile of the portfolio.