Question

You invest $600 in a security with a beta of 1.2 and $400 in another security with a beta of 0.90. The beta of the resulting portfolio is:

(a) 1.08
(b) 1.02
(c) 0.96
(d) 0.90

Answer 1

The beta of the resulting portfolio is 1.08.

Step-by-step explanation:

The beta of a portfolio is calculated by weighing the individual betas of the securities in the portfolio based on their respective investments. In this case, you are investing $600 in a security with a beta of 1.2 and $400 in another security with a beta of 0.90.

To calculate the beta of the resulting portfolio, you can use the formula:

Beta of Portfolio = (Investment in Security A / Total Investment) * Beta of Security A + (Investment in Security B / Total Investment) * Beta of Security B

Plugging in the values, the calculation would be:

Beta of Portfolio = ($600 / $1000) * 1.2 + ($400 / $1000) * 0.90

Simplifying the equation:

Beta of Portfolio = 0.72 + 0.36

Beta of Portfolio = 1.08

Therefore, the beta of the resulting portfolio is 1.08. So, the correct answer is (a) 1.08.