Question

There are two stocks (A and B) in your portfolio, and you have invested an equal amount of money in each stock. Stock A has a beta of 1.5, and stock B has a beta of 1.9. What is the portfolio beta?

a) 1.7
b) 1.8
c) 1.9
d) 2.0

Answer 1

The portfolio beta is calculated by taking the weighted average of the individual stock betas. In this case, since you invested an equal amount of money in each stock, the weights are also equal. The portfolio beta can be calculated using the formula: Portfolio Beta = (Weight of Stock A * Beta of Stock A) + (Weight of Stock B * Beta of Stock B). Using the given information, the portfolio beta is 1.7.

Step-by-step explanation:

The portfolio beta is calculated by taking the weighted average of the individual stock betas. In this case, since you invested an equal amount of money in each stock, the weights are also equal. The formula is:

Portfolio Beta = (Weight of Stock A * Beta of Stock A) + (Weight of Stock B * Beta of Stock B)

Using the given information, the calculation would be:

• (0.5 * 1.5) + (0.5 * 1.9) = 0.75 + 0.95 = 1.7

Therefore, the portfolio beta is 1.7.