# Required Rate of Return vs Expected Return

I faced a problem that gives the following information:

• market risk premium, and risk free rate is given
• You currently have a portfolio of amount of x, beta b1.
• Now there is a new investment opportunity of amount y, beta b2, expected return r2.

The question is: Under what circumstance should you take the new investment opportunity?

I think the answer is quite simple, just calculate the required rate of return for investment y, and compare that to r2. If it is lower than r2 then take it, else don't.

I am slightly confused because the problem also gave the information on the current investment, and value of the new investment. Is this redundant information?

• Is it at the expense of the current investment? Jun 10, 2013 at 18:50
• It didn't say. But you can assume it is. Jun 10, 2013 at 19:09
• With CFA exams just having taken place, is this a CFA question? Jun 11, 2013 at 1:25
• No. CFA exams questions are usually worded better than this. Jun 11, 2013 at 16:32
• @XiaowenLi, well you can chose your own wording on this site, can't blame my neighbor for failing the exam because I copied the wrong answer off his answer sheet ;-) Jun 11, 2013 at 21:24