In: Finance
LeBron holds the following portfolio:
Stock |
Investment |
Beta |
||
A |
$100,000 |
1.40 |
||
B |
$100,000 |
0.70 |
||
C |
$200,000 |
1.40 |
||
D |
$100,000 |
1.80 |
||
Total |
$500,000 |
LeBron plans to sell Stock C and replace it with Stock E, which has
a beta of 0.80. By how much will the portfolio beta change?
Ans 0.54
STOCK | BETA | Investment | Beta * Investment |
A | 1.40 | 1,00,000 | 1,40,000 |
B | 0.70 | 1,00,000 | 70,000 |
C | 1.40 | 2,00,000 | 2,80,000 |
D | 1.80 | 1,00,000 | 1,80,000 |
Total | 6,70,000 | ||
Average beta = | (Beta* Investment) / Total Investment | ||
670000 / 500000 | |||
1.34 | |||
Difference in Beta = | 1.34 - 0.80 | ||
0.54 |