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Walter Jasper currently manages a $500,000 portfolio. He is expecting to receive an additional $250,000 from a new client. The existing portfolio has a required return of 10.75 percent. The risk-free rate is 4 percent and the return on the market is 9 percent. If Walter wants the required return on the new portfolio to be 11.5 percent, what should be the average beta for the new stocks added to the portfolio?
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CAPM formula: Expected return = Risk-free rate + Beta * (Expected market return – Risk-free rate)
The existing portfolio is $500,000 with a required return of 10.75% or an annual return of …
