Question

Based on the investment portfolio information shown below, what is the portfolio’s beta?

Stock	Investment	Beta
D	$465,000	0.7
E	$685,000	0.5
F	$520,000	1.2

Answer 1

Solution:
	Portfolio’s beta    0.77
Working Notes:
	Beta of a Portfolio = Weighted average risk of individual assets.
	Beta of D = 0.7
	Weight of stock D    W D = investment in D/ total investment
	= 465,000/(465,000 + 685,000 + 520,000)
	= 0.27844
	Beta of E = 0.5
	Weight of stock E    W E = investment in E/ total investment
	= 685,000/(465,000 + 685,000 + 520,000)
	= 0.4101796
	Beta of F = 1.2
	Weight of stock F    W F = investment in F/ total investment
	= 520,000/(465,000 + 685,000 + 520,000)
	= 0.311377
	Beta of a Portfolio = Weighted average risk of individual assets.
	= BD x WD + BE x WE + BF x WF
	= 0.27844 x 0.70 + 0.4101796 x 0.50 + 0.311377 x 1.2
	= 0.77365
	=0.77
Please feel free to ask if anything about above solution in comment section of the question.