You have been managing a 5 million portfolio that has a beta

You have been managing a $5 million portfolio that has a beta of 1.15 and a required rate of return of 10%. The current risk-free rate is 6.50%. Assume that you receive another $500,000. If you invest the money in a stock with a beta of 1.15, what will be the required return on your $5.5 million portfolio? Do not round intermediate calculations. Round your answer to two decimal places.

Solution

As the beta of the new security is also 1.15, the beta of the new portfolio, after the additional investment, would be 1.15. Hence, the return would be the same 10%.