Question

You have a portfolio that is invested 17 percent in Stock A, 38 percent in Stock B, and 45 percent in Stock C. The betas of the stocks are .62, 1.17, and 1.46, respectively. What is the beta of the portfolio

Answer 1

The portfolio beta is 1.207

Step-by-step explanation:

The portfolio beta is the weighted average of the individual stock betas that form up the portfolio. The weightage of each stock in the portfolio is calculated on the basis of investment in that stock as a proportion of total investment in the portfolio. The portfolio beta is calculated as follows,

Portfolio beta = Weight of Stock A * Beta of Stock A + Weight of Stock B * Beta of Stock B + ... + Weight of Stock N * Beta of Stock N

Portfolio beta = 0.17 * 0.62 + 0.38 * 1.17 + 0.45 * 1.46

Portfolio beta = 1.207