The portfolio beta, considering investments in Intel, GE, and Con Edison, is 1.048, calculated as the weighted average of individual stock betas based on their portfolio weights. option 1.048 is correct.
To calculate the portfolio beta, we use the weighted average of the individual stock betas based on their respective portfolio weights. The formula is as follows:
Portfolio Beta = (Weight of Intel× Beta of Intel)+(Weight of GE× Beta of GE)+(Weight of Con Edison× Beta of Con Edison)
Portfolio Beta=(Weight of Intel× Beta of Intel)+(Weight of GE× Beta of GE)+(Weight of Con Edison× Beta of Con Edison)
Given:
Weight of Intel = $20,000 / $50,000 = 0.4,
Weight of GE = $12,000 / $50,000 = 0.24,
Weight of Con Edison = 1 - (0.4 + 0.24) = 0.36,
Beta of Intel = 1.3,
Beta of GE = 1,
Beta of Con Edison = 0.8.
Substitute these values into the formula:
Portfolio Beta=(0.4×1.3)+(0.24×1)+(0.36×0.8)
Portfolio Beta=(0.4×1.3)+(0.24×1)+(0.36×0.8)
Portfolio Beta =0.52 +0.24 + 0.288
Portfolio Beta=0.52+0.24+0.288
Portfolio Beta = 1.048
Portfolio Beta=1.048
Therefore, the correct option is 1.048.