You own a portfolio that has a total value of $150,000 and a beta of 1.32....

You own a portfolio that has a total value of $150,000 and a beta of 1.32. You have another $61,000 to invest and you would like the beta of your portfolio to decrease to 1.25. What does the beta of the new investment have to be in order to accomplish this?

Expert Solution

Original portfolio * Beta = 150000 * 1.32 = 198000

Revised portfolio value = 150000 + 61000 = 211000

Revised portfolio * Beta = 211000 * 1.25 = 263750

DIfference in value weighted beta = 263750 - 198000 = 65750

Beta of new investment = Value weighted beta / Value of new investment

= 65750 / 61000

= 1.08

Hence the beta of new investment should be 1.08

jeff jeffy answered 2 years ago

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