Question

Suppose you hold a portfolio consisting of a $10,000 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? Do not round your intermediate calculations.

Answer 1

1.31

Step-by-step explanation:

Portfolio's new beta.

New beta = weight * change in beta

Weight = 0.125

Change in beta=(1.55-1)

Hence:

=.125 * (1.55 – 1)

=.125*0.55

= 0.06875

Hence:

1.25 + .06875

= 1.31