Answer:
1.29
Step-by-step explanation:
From the question above Stan holds a portfolio consisting of $10,000 investment in each 8 different common stocks
The portfolio's beta is 1.25
Suppose Stan decides to sell one of his stocks that has a beta of 1.00
He then used the money gotten from it to buy a replacement stock with beta of 1.35
The first step is to calculate the amount and weight in each stock
Amount in each stock = 10,000/8
= $1,250
Weight in each stock= 1250/10,000
= 0.125
The next step is to calculate the change in portfolio's beta
= weight × change in security beta
= 0.125×(1.35-1)
= 0.125× 0.35
= 0.04375
Therefore, the new porfolio's beta can be calculated as follows
= 1.25+0.04375
= 1.29
Hence the new portfolio's beta would be 1.29