Question
Suppose that Bill is holding an equity portfolio that is worth $500,000 and has a beta of 0.8 from which the expected return is 8%
Suppose that Bill is holding an equity portfolio that is worth $500,000 and has a beta of 0.8 from which the expected return is 8% per annum. He would like to purchase $800,000 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:
(a)The total value of the new portfolio is __________.
(b)The weight in the hedge fund in the new portfolio is __________.
(c)The beta of the new portfolio is __________. (Round totwo decimal places.)
(d)The expected return of the new portfolio is __________%.
(e)The addition of the hedge fund __________ (has or has not) improved the overall risk-return profile of the portfolio.
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