In: Finance
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.
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 |