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You own $11,153 of Olympic Steel stock that has a beta of 1.98. You also own...

You own $11,153 of Olympic Steel stock that has a beta of 1.98. You also own $20,545 of Rent-a-Center (beta = 1.58) and $27,002 of Lincoln Educational (beta = 0.73).

What is the beta of your portfolio? (Round your answer to 2 decimal places.)

Solutions

Expert Solution

Solution:
Beta of the portfolio is      1.27
Working Notes:
Beta of a Portfolio = Weighted average beta of individual assets.
We have only value of the investment , we will calculate weight of each stock in the portfolio using these value of investment in stock.
Total investment in portfolio (V)= Investment in Olympic Steel + Investment in Rent a center + Investment in Lincoln Educational
Total investment in portfolio (V)= 11,153 + 20,545 + 27,002
Total investment in portfolio (V)= $58,700
B1 beta of stock Olympic Steel = 1.98
W1 Weight of stock Olympic Steel =investment Olympic Steel/ total investment
W1 Weight of stock Olympic Steel =11,153/ 58,700
W1 Weight of stock Olympic Steel =0.19
W1 Weight of stock Olympic Steel =19%
B2 beta of stock Rent-a-Center = 1.58
W2 Weight of stock Rent-a-Center =investment Rent-a-Center/ total investment
W2 Weight of stock Rent-a-Center =20,545/ 58,700
W2 Weight of stock Rent-a-Center =0.35
W2 Weight of stock Rent-a-Center =35%
B3 beta of stock Lincoln Educational = 0.73
W3 Weight of stock Lincoln Educational=investment Rent-a-Center/ total investment
W3 Weight of stock Lincoln Educational=27,002/ 58,700
W3 Weight of stock Lincoln Educational=0.46
W3 Weight of stock Lincoln Educational=46%
Beta of the Portfolio = Weighted average beta of individual assets.
= B1 x W1 + B2 x W2 + B3 x W3
= 1.98 x 19% + 1.58 x 35% + 0.73 x 46%
= 1.265
=1.27
Please feel free to ask if anything about above solution in comment section of the question.

jeff jeffy answered 2 years ago
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