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In: Finance

PORTFOLIO BETA An individual has $45,000 invested in a stock with a beta of 0.8 and...

PORTFOLIO BETA

An individual has $45,000 invested in a stock with a beta of 0.8 and another $30,000 invested in a stock with a beta of 2.5. If these are the only two investments in her portfolio, what is her portfolio's beta? Round your answer to two decimal places.

Solutions

Expert Solution

Portfolio Beta              1.480
Working:
# 1: Calculation of weight of security:
Stock A $       45,000
Stock B $       30,000
Total $       75,000
Weight of:
Stock A $       45,000 / $ 75,000 = 0.6
Stock B $       30,000 / $ 75,000 = 0.4
# 2:Calculation of beta of portfolio:
Weight Beta
a b a*b
Stock A 0.6 0.8         0.480
Stock B 0.4 2.5         1.000
Total         1.480
So, beta of portfolio is         1.480

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