Answer: Increase by 0.896%

## Explanation Using the CAPM formula: \[ E(R_p) = R_f + \beta_p(E(R_m) - R_f) \] **Initial expected return:** \[ E(R_{p1}) = 2.4\% + 1.12(8.2\% - 2.4\%) \] \[ E(R_{p1}) = 2.4\% + 1.12(5.8\%) \] \[ E(R_{p1}) = 2.4\% + 6.496\% \] \[ E(R_{p1}) = 8.896\% \] **New expected return:** \[ E(R_{p2}) = 2.4\% + 1.12(9.0\% - 2.4\%) \] \[ E(R_{p2}) = 2.4\% + 1.12(6.6\%) \] \[ E(R_{p2}) = 2.4\% + 7.392\% \] \[ E(R_{p2}) = 9.792\% \] **Impact on expected return:** \[ \Delta E(R_p) = E(R_{p2}) - E(R_{p1}) \] \[ \Delta E(R_p) = 9.792\% - 8.896\% \] \[ \Delta E(R_p) = 0.896\% \] Alternatively, we can calculate the impact directly: \[ \Delta E(R_p) = \beta_p \times \Delta E(R_m) \] \[ \Delta E(R_p) = 1.12 \times (9.0\% - 8.2\%) \] \[ \Delta E(R_p) = 1.12 \times 0.8\% \] \[ \Delta E(R_p) = 0.896\% \] Therefore, the expected portfolio return **increases by 0.896%**, which corresponds to **Option A**.

Author: LeetQuiz Editorial Team