Question

You have a portfolio that is invested 21 percent in stock a, 36 percent in stock b, and 43 percent in stock c. the betas of the stocks are .74, 1.29, and 1.58, respectively. what is the beta of the portfolio? multiple choice

a. 1.20
b. 1.30
c. 1.07
d. 1.46
e. 1.25

Answer 1

The correct answer is option b. The beta of the portfolio is determined by performing a weighted sum of the individual stock betas, resulting in a portfolio beta of 1.30.

Step-by-step explanation:

The beta of a portfolio is calculated by taking the weighted average of the betas of the individual stocks that make up the portfolio. We must multiply each stock's beta by the percentage of the portfolio it represents and then sum these products.

To find the beta of the portfolio:

• Beta of Stock A = 0.74
• Beta of Stock B = 1.29
• Beta of Stock C = 1.58

Weight of Stock A = 21%

Weight of Stock B = 36%

Weight of Stock C = 43%

The portfolio beta calculation is as follows:

(0.21 * 0.74) + (0.36 * 1.29) + (0.43 * 1.58)

= 0.1554 + 0.4644 + 0.6794

= 1.2992

Rounding to two decimal places, the beta of the portfolio is 1.30, so the correct option is b. 1.30.