Final answer:
To calculate the portfolio beta, multiply each stock's weight by its beta and sum the results. For a portfolio of investments, the portfolio beta is the weighted average of the beta coefficient of all individual securities in the portfolio.
Step-by-step explanation:
To calculate the portfolio beta, we need to multiply the weight of each stock by its corresponding beta and then sum up the results. We can use the formula:
Portfolio Beta = (Weight of Stock Q * Beta of Stock Q) + (Weight of Stock R * Beta of Stock R) + (Weight of Stock S * Beta of Stock S) + (Weight of Stock T * Beta of Stock T)
Plugging in the given values:
Portfolio Beta = (0.17 * 0.93) + (0.23 * 0.99) + (0.37 * 1.39) + (0.23 * 1.84)
Simplifying the equation:
Portfolio Beta = 0.1581 + 0.2277 + 0.5133 + 0.4232 = 1.3223
Therefore, the portfolio beta is 1.3223.
Conceptually, the portfolio beta is the expected volatility in returns relative to the market as a whole. Therefore, investors often analyze the portfolio beta to determine the expected return on their collection of investments to protect their returns against market risk.