Question

In: Finance

Cher owns a portfolio that has a value of 72,900 dollars and consists of 3 stocks....

Cher owns a portfolio that has a value of 72,900 dollars and consists of 3 stocks. It has 16,400 dollars worth of stock A, which has a beta of 0.28; it has 2,000 shares of stock B, which has a share price of 8 dollars and a beta of 1.02; and it has some stock C, which has a beta of 1.42. What is the beta of Cher’s portfolio? Round your answer to 2 decimal places (for example, 2.89, 0.70, or 1.00).

Expert Solution

Stock	Value	Share of portfolio	Beta	Weighted Data
Stock A	16400	0.23	0.28	0.0644
Stock B	16000	0.22	1.02	0.2244
Stock C	40500	0.56	1.42	0.7952
Total Value of Portfolio	72900			1.084

The sum of the weighted data is the Beta of the portfolio. Here the Beta of the portfolio is 1.08 (rounded to two decimal places).

The Beta of the portfolio is greater than 1. It indicates that the portfolio is more volatile.

Working Notes:

1. Value of Stock B

It is given that Cher has 2000 shares of stock B which is priced at $8

Hence, value of Stock B = 2000 x 8

=$16000

2. Value of Stock C

Given,

The total value of the portfolio = 72900

Value of Stock A = 16400

Value of Stock B = 16000

Therefore, Value of Stock C = 72900 – 16400 – 16000 = 40500

3. Share of portfolio

Share of portfolio is the proportion of the individual stock in the portfolio

It is calculated as:

Share of portfolio = Value of Stock / Total value of Portfolio

4. Weighted data is calculated by multiplying share of portfolio with Beta

Weighted data = Share of portfolio x Beta

jeff jeffy answered 2 years ago

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