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In: Finance
Question # 03 Mr. Hatim hold a diversified portfolio consisting of Pakistan State Oil, OGDC, Mobilink,...
Question # 03
Mr. Hatim hold a diversified portfolio consisting of Pakistan State
Oil, OGDC, Mobilink, Fauji Fertilizer Company, Zeal Pak Cement and
KAPCO. He made an investment of Rs. 10,000 in each common stock.
Beta of the portfolio is 1.17. After analyzing the market trends he
decided to sell Zeal Pak Cement with a beta of 1.0 for Rs.10,000
and use the proceeds to buy Pakistan Tobacco Company with a beta of
1.65. On the basis of provided information what would be the new
portfolio beta that Mr. Hatim holds?
Solutions
Expert Solution
| Weight | Weight | |||
| Pakistan State Oil | $ 10,000 | 10000/60000 | 16.67% | |
| OGDC | $ 10,000 | 10000/60000 | 16.67% | |
| Mobilink | $ 10,000 | 10000/60000 | 16.67% | |
| Fauji Fertilizer | $ 10,000 | 10000/60000 | 16.67% | |
| Zeak Pak cement | $ 10,000 | 10000/60000 | 16.67% | |
| KAPCO | $ 10,000 | 10000/60000 | 16.67% | |
| $ 60,000 | ||||
| Portfolio Beta | 1.17 | |||
| Portfolio Beta excluding Zeak= | 1.17-Weight Zeak*1 | |||
| Portfolio Beta excluding Zeak= | 1.17-16.67%*1 | |||
| Portfolio Beta excluding Zeak= | 1.00 | |||
| Pakistan Tobacco company weighted beta | Weight Pakistan Tobacco * Beta | |||
| Pakistan Tobacco company weighted beta | 16.67%*1.65 | |||
| Pakistan Tobacco company weighted beta | 0.28 | |||
| Portfolio beta= | Portfolio Beta excluding Zeak+Pakistan Tobacco company weighted beta | |||
| Portfolio beta= | 1+0.28 | |||
| Portfolio beta revised= | 1.28 |
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