Question

You own a stock portfolio invested 30 percent in Stock Q, 30 percent in Stock R, 30 percent in Stock S, and 10 percent in Stock T. The betas for these four stocks are .82, 1.20, 1.21, and 1.38, respectively. What is the portfolio beta?

Answer 1

1.11

Step-by-step explanation:

The computation of portfolio beta is shown below:-

Portfolio Beta = (Percentage of stock Q × beta of Q) + (Percentage of stock R × Beta of R) + (Percentage of stock S × Beta of S) + (Percentage of stock T × Beta of T)

= (30% × 0.82) + (30% × 1.20) + (30% × 1.21) + (10% × 1.38)

= (0.30 × 0.82) + (0.30 × 1.20) + (0.30 × 1.21) + (0.10 × 1.38)

= 0.246 + 0.36 + 0.363 + 0.138

= 1.11

So, for computing the portfolio beta we simply applied the above formula.