Question

You own 400 shares of Stock A at a price of $60 per share, 500 shares of Stock B at $85 per share, and 900 shares of Stock C at $25 per share. The betas for the stocks are 0.8, 1.2, and 0.7, respectively. What is the beta of your portfolio?

Answer 1

Portfolio beta is 0.97

Step-by-step explanation:

Portfolio bet is the average beta calculated on the basis of weightage of each investment. The beta of every investment is multiplied with the weightage of each investment in a portfolio. The all the value is added to get the portfolio beta

Stock Beta Share Rate Value Weightage

A 0.8 500 $60 $24,000 $24,000/$89,00 = 0.27

B 1.2 500 $85 $42,500 $42,500/$89,00 = 0.48

C 0.7 900 $25 $22,500 $24,000/$89,00 = 0.25

Total $89,000

Portfolio Beta = ( Stock A beta x Stock A Weightage) + ( Stock B beta x Stock B Weightage) + ( Stock C beta x Stock C Weightage)

Portfolio Beta = ( 0.8 x 0.27 ) + ( 1.2 x 0.48 ) + ( 0.7 x 0.25 ) = 0.216 + 0.576 + 0.175 = 0.967

Portfolio beta is 0.97