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Assume that you hold a well-diversified portfolio that has an expected return of 11.0% and a beta of 1.20. You are in the process of buying 1,000 shares of Alpha Corp at $10 a share and adding it to your portfolio. Alpha has an expected return of 13.0% and a beta of 1.50. The total value of your current portfolio is $90,000. What will the expected return and beta on the portfolio be after the purchase of the Alpha stock?
a. 10.64%; 1.17
b. 11.76%; 1.29
c. 12.97%; 1.42
d. 11.20%; 1.23
e. 12.35%; 1.36
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Which of the following could cause an increase in total equity?
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Corporate bonds issued by Johnson Corporation currently yield 10%. Municipal bonds of equal risk currently yield 6.5%. At what tax rate would an investor be indifferent between these two bonds?
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