Question

You have a portfolio that is invested 14 percent in Stock R, 50 percent in Stock S, and the remainder in Stock T. The beta of Stock R is .81, and the beta of Stock S is 1.36. The beta of your portfolio is 1.30. What is the beta of the Stock T

Answer 1

1.41 Approx

Step-by-step explanation:

The computation of the beta for the stock T is shown below:

Beta of portfolio = Respective betas × Respective investment weights

1.30 = (0.14 × 0.81) + (0.5 × 1.36) + (0.36 × beta of the Stock T)

1.30 =0.7934 + (0.36 × beta of the Stock T)

beta of the Stock T = (1.3 - 0.7934) ÷ 0.36

= 1.41 Approx

We simply multiplied the beta of each stock with its investment weights order to calculate the beta of the stock T as portfolio beta is given