Question

A portfolio includes 20% stock a, 40% stock b, and the remainder of stock c. the beta of stocks a, b, and c are 1.5, 1.2, and 0.6, respectively. what is the portfolio beta?

Answer 1

The portfolio beta can be calculated by taking a weighted average of the individual stock betas.

Step-by-step explanation:

To find the portfolio beta, we need to calculate the weighted average of the individual stock betas based on their proportions in the portfolio. In this case, we have 20% stock A with a beta of 1.5, 40% stock B with a beta of 1.2, and the remainder (40%) invested in stock C with a beta of 0.6.

To calculate the portfolio beta, we can use the formula:

Portfolio Beta = (Weight A * Beta A) + (Weight B * Beta B) + (Weight C * Beta C)

Substituting in the given values, we have:

Portfolio Beta = (0.2 * 1.5) + (0.4 * 1.2) + (0.4 * 0.6) = 0.3 + 0.48 + 0.24 = 1.02

Therefore, the portfolio beta is 1.02.