Question

Suppose you hold a portfolio consisting of a $50,000 investment in each of 8 different common stocks. The portfolio’s beta is 1.25. Now suppose you decided to sell one of your stocks that has a beta of 1.00 and to use the proceeds to buy a replacement stock with a beta of 1.55. What would the portfolio’s new beta be? 1.17 1.23 1.29 1.32 1.43

Answer 1

Correct Answer is 1.32

Step-by-step explanation:

Increase in beta as a result of net sales=(1.55-1)=0.55

Hence increase/stock=0.55/8

=0.06875

Hence, New beta=1.25+0.06875

=1.32(Approx).