Question

you invest $35,000 in the overall stock market, $11,000 in hawkins stock, and $16,000 in jefferson stock. if hawkins' beta is 0.58 and jefferson's beta is 1.45, what is the beta of your portfolio? keep 4 decimal places in intermediate steps and show 2 decimal places in your final answer.

Answer 1

The beta of the portfolio is calculated as 0.85, by performing a weighted average of the individual stock betas based on the investment amounts in each stock.

Step-by-step explanation:

To calculate the beta of your portfolio, you need to perform a weighted average using the betas of the individual stocks in the portfolio, proportionate to the investment amounts. First, find the percentage of the total investment that each stock represents: $11,000 in Hawkins and $16,000 in Jefferson out of the total $35,000. Then, compute the weighted beta by multiplying each stock's beta by its respective percentage and summing these products.

For Hawkins: (11,000/35,000) * 0.58 = 0.1823
For Jefferson: (16,000/35,000) * 1.45 = 0.6686
Now add these two to get the portfolio beta.
Portfolio Beta = 0.1823 + 0.6686 = 0.8509

The beta of the portfolio is 0.85 when rounded to two decimal places.