Question

You have a $56,000 portfolio consisting of Intel, GE, and Con Edison. You put $22,400 in Intel, $14,400 in GE, and the rest in Con Edison. Intel, GE, and Con Edison have betas of 1.3, 1, and .8, respectively. What is your portfolio beta?

Answer 1

1.05142

Step-by-step explanation:

Given that,

portfolio consisting of Intel, GE, and Con Edison = $56,000

Amount put in Intel = $22,400

Amount put in GE = $14,400

Amount put in Con Edison = $19,200

Beta for Intel = 1.3

Beta for GE = 1

Beta for Con Edison = 0.8

Weight of investment of Intel:

= Amount put in Intel ÷ Total investment

= $22,400 ÷ $56,000

= 0.4 or 40%

Weight of investment of GE:

= Amount put in GE ÷ Total investment

= $14,400 ÷ $56,000

= 0.2571 or 25.71%

Weight of investment of Con Edison:

= Amount put in Con Edison ÷ Total investment

= $19,200 ÷ $56,000

= 0.3429 or 34.29%

Port folio beta:

= Beta × Weight of investment

= (1.3 × 40%) + (1 × 25.71%) + (0.8 × 34.29%)

= 0.52 + 0.2571 + 0.27432

= 1.05142