Question

In: Finance

Suppose Stan holds a portfolio consisting of a $10,000 investment in each of 8 different common...

Suppose Stan holds a portfolio consisting of a $10,000 investment in each of 8 different common stocks. The portfolio's beta is 1.25. Now suppose Stan decided to sell one of his stocks that has a beta of 1.00 and to use the proceeds to buy a replacement stock with a beta of 0.76. What would the portfolio's new beta be? Select the correct answer.

a. 1.06

b. 1.10

c. 1.22

d. 1.18

e. 1.14

Solutions

Expert Solution

Decrease in beta as a result of net sales=(1-0.76)

=0.24

Hence decrease/stock=0.24/8

=0.03

Hence new beta=1.25-0.03

=1.22


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