You hold a portfolio consisting of a $5,000 investment in each of 20 different stocks. The...

You hold a portfolio consisting of a $5,000 investment in each of 20 different stocks. The portfolio beta is equal to 1.12. You have decided to sell a coal mining stock (b = 1.00) at $5,000 net and use the proceeds to buy a like amount of a mineral rights company stock (b = 2.75). What is the new beta of the portfolio? Select the correct answer.

a. 1.2075

b. 1.1895

c. 1.1955

d. 1.1835

e. 1.2015

Solutions

Expert Solution

Total beta = Number of stocks * Portfolio beta

= 20 * 1.12

= 22.40

Revised total beta = 22.40 - 1.00 + 2.75

= 24.15

Revised Beta of the portfolio = 24.15 / 20

= 1.2075

Correct choice A

jeff jeffy answered 2 years ago

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