Question

Your portfolio is comprised of 30 percent of Stock X, 20 percent of Stock Y, and 50 percent of Stock Z. Stock X has a beta of 1.05, Stock Y has a beta of 0.94, and Stock Z has a beta of 1.32. What is the beta of your portfolio?

Answer 1

The beta of your portfolio is calculated as 1.163 by combining the weighted averages of the individual betas of the stocks that make up your portfolio.

Step-by-step explanation:

To calculate the beta of the portfolio, we multiply the beta of each stock by its weight in the portfolio and then sum up the results. This is the formula for calculating the portfolio beta:

Portfolio Beta = (Weight of Stock X × Beta of Stock X) + (Weight of Stock Y × Beta of Stock Y) + (Weight of Stock Z × Beta of Stock Z)

For this particular portfolio:

• 30% of Stock X with a beta of 1.05
• 20% of Stock Y with a beta of 0.94
• 50% of Stock Z with a beta of 1.32

Applying the weights and betas:

Portfolio Beta = (0.30 × 1.05) + (0.20 × 0.94) + (0.50 × 1.32)

Portfolio Beta = (0.315) + (0.188) + (0.66)

Portfolio Beta = 1.163

So, the beta of your portfolio is 1.163.