Question: Suppose that an investor is holding an equity portfolio that is worth $800,000 and has a beta of 1.1 from which the expected return is 12% per annum. The investor would like to purchase $200,000 of units in a hedge fund that has a beta of 0.8 from which a return of 5% per annum is expected.

i. Determine the beta of the new portfolio.

ii. Determine the expected return on the new portfolio.

iii. Has the addition of the hedge fund added value to the overall risk-return profile of the portfolio? Explain