In: Finance

# Suppose you held a diversified portfolio consisting of a $7,500 investment in each of 20 different... Suppose you held a diversified portfolio consisting of a$7,500 investment in each of 20 different common stocks. The portfolio's beta is 1.31. Now suppose you decided to sell one of the stocks in your portfolio with a beta of 1.0 for $7,500 and use the proceeds to buy another stock with a beta of 1.35. What would your portfolio's new beta be? Do not round intermediate calculations. Round your answer to two decimal places. ## Solutions ##### Expert Solution  Total Portfolio value = Value of 19 stocks + Value of Stock sold =142500+7500 =150000 Weight of 19 stocks = Value of 19 stocks/Total Portfolio Value = 142500/150000 =0.95 Weight of Stock sold = Value of Stock sold/Total Portfolio Value = 7500/150000 =0.05 Beta of Portfolio = Weight of 19 stocks*Beta of 19 stocks+Weight of Stock sold*Beta of Stock sold 1.31 = Beta of 19 stocks*0.95+1*0.05 Beta of 19 stocks = 1.3263  Total Portfolio value = Value of 19 stocks + Value of Stock bought =142500+7500 =150000 Weight of 19 stocks = Value of 19 stocks/Total Portfolio Value = 142500/150000 =0.95 Weight of Stock bought = Value of Stock bought/Total Portfolio Value = 7500/150000 =0.05 Beta of Portfolio = Weight of 19 stocks*Beta of 19 stocks+Weight of Stock bought*Beta of Stock bought Beta of Portfolio = 1.3263*0.95+1.35*0.05 Beta of Portfolio = 1.33 ## Related Solutions ##### Suppose you held a diversified portfolio consisting of a$7,500 investment in each of 20 different...
Suppose you held a diversified portfolio consisting of a $7,500 investment in each of 20 different common stocks. The portfolio's beta is 1.84. Now suppose you decided to sell one of the stocks in your portfolio with a beta of 1.0 for$7,500 and use the proceeds to buy another stock with a beta of 0.93. What would your portfolio's new beta be? Do not round intermediate calculations. Round your answer to two decimal places.
You hold a diversified portfolio consisting of a $10,000 investment in each of 20 different common stocks (i.e., your total investment is$200,000). The portfolio beta is equal to 1.2 . You have decided to add another stock with a beta equal to 1.7 for $50,000. What will be the beta of the new portfolio? (Round to two digit decimal places) ##### 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
Suppose you hold a portfolio consisting of a $10,000 investment in each of 10 different common stocks. The portfolio’s beta is 1.25. Now suppose you decided to make two changes to your portfolio as follows:a) sell stock X that has a beta of 1.0 and replace it with stock Y that has a beta od 1.5, andb) sell stock W that has a beta of 1.2 and replace it with stock Z that has a beta of 2.1. What would... ##### Suppose Stan holds a portfolio consisting of a$10,000 investment in each of 8 different common...
Suppose Stan holds a portfolio consisting of a \$10,000 investment in each of 8 different common stocks. The portfolio's beta is 1.25. Now suppose Stan decided to sell one of his stocks that has a beta of 1.00 and to use the proceeds to buy a replacement stock with a beta of 0.76. What would the portfolio's new beta be? Select the correct answer. a. 1.06 b. 1.10 c. 1.22 d. 1.18 e. 1.14