Question

An individual has $40,000 invested in a stock with a beta of 0.6 and another $60,000 invested in a stock with a beta of 2.1. If these are the only two investments in her portfolio, what is her portfolio's beta? Do not round intermediate calculations. Round your answer to two decimal places.

Answer 1

Portfolio beta= 1.50

Step-by-step explanation:

The portfolio beta is the weighted average beta which is the sum of the individual beta in the portfolio weighted according to the proportion that each individual asset value bears to the total asset value.

This is given in the relationship below

Portfolio beta = WaRa + Wb+Rb + Wn+Rn

W- weight, R- stock beta

Portfolio beta = (40,000/100,000)×0.6 + = (60,000/100,000)×2.1

=1.50

Portfolio beta= 1.50