Calculating required return on portfolio

[ChaoZ]

Problem:
You have a portfolio that has a required return of 12%, beta of 1.2 and a total value of $9,000. You want to add a new stock that's worth $1,000 and has a beta of 1.2. The current risk-free rate is 4%. What's the required return on the portfolio after the stock purchase?


I got a portfolio beta of .1280 from doing .09(1.2) + .01(2). I got market risk premium of 8% from 12% - 4%. I tried .04 + (.08)(.1280) but doesn't get me the right answer. Help please!!

 

[WildHorse]

You have a portfolio that has a required return of 12%

If the required return is 1.12, then the answer is 1.12 since it's "required."

The CAPM stuff is in this instance a red herring.

 

[ChaoZ]

The required return changes depending on the beta and risk. Since it changed, there should be a new required return.