Question

your portfolio has a beta of 1.45. the portfolio consists of 15 percent u.s. treasury bills, 31 percent stock a, and 54 percent stock b. stock a has a risk level equivalent to that of the overall market. what is the beta of stock b?

Answer 1

To find the beta of Stock B in the portfolio, you need to calculate the weighted average beta of the portfolio. The beta of Stock A is equivalent to the beta of the overall market. Using the given weights of the stocks and the beta of the portfolio, you can solve for the beta of Stock B.

Step-by-step explanation:

To find the beta of Stock B, we need to calculate the weighted average beta of the portfolio. The beta of Stock A is equivalent to the beta of the overall market, so we can assume it has a beta of 1. The weight of Stock A in the portfolio is 31%. The weight of Stock B is 54%. The weight of U.S. Treasury bills is 15%.

We can use the formula:

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

Substituting the values:

1.45 = (0.31 * 1) + (0.54 * Beta of Stock B) + (0.15 * 0)

Simplifying the equation:

1.45 = 0.31 + (0.54 * Beta of Stock B)

0.54 * Beta of Stock B = 1.45 - 0.31

0.54 * Beta of Stock B = 1.14

Beta of Stock B = 1.14 / 0.54

Beta of Stock B = 2.11