$6.(12$ points$)$

You are an investor in common stock and you currently hold a well$-$diversified portfolio that has an expected return of $12$ percent, a beta of $1\mathrm{.}2$ and a total value of $\backslash (\backslash$$ $9,000\backslash ).$ You plan to increase your portfolio by buying $100$ shares of IBM at $\backslash (\backslash$$ $10\backslash )$ a share. IBM has an expected return of $20$ percent with a beta of $2\mathrm{.}0.$ What will be the expected return and the beta of your portfolio after you purchase the new stock?

$7.(11$ points$)$

Assume that the current interest rate on a $1-$year bond is $8$ percent, the current rate on a $2-$year bond is $10$ percent, and the current rate on a $3-$year bond is $12$ percent. If the expectations theory of the term structure is correct, what is the $1-$year interest rate expected during Year $3?$

Optional Bonus Question:

$(8$ points$)$

Discuss the pros and cons of having the managers of a company formally announce what the company's dividend policy will be in the future.