Question

An individual has $45,000 invested in a stock with a beta of 0.7 and another $75,000 invested in a stock with a beta of 1.4. If these are the only two investments in her portfolio, what is her portfolio's beta

Answer 1

Answer:

portfolio's beta =  1.1375

Explanation:

given data

individual  invested =  $45,000

beta = 0.7

invested in stock = $75,000

beta = 1.4

solution

first we get here total portfolio value that is

total portfolio value = $45,000+75,000

total portfolio value = $120,000

so here Weighted average beta of stock 1 is

Weighted average beta =  $\frac{45000}{120000} \times 0.7$

Weighted average beta  = 0.2625

and

Weighted average beta of stock 2 is

Weighted average beta = $\frac{75000}{120000} \times 1.4$

Weighted average beta =  0.875

so

portfolio's beta =  0.2625  + 0.875

portfolio's beta =  1.1375