Question

You own a stock portfolio invested 20 percent in Stock Q, 30 percent in Stock R, 15 percent in Stock S, and 35 percent in Stock T. The betas for these four stocks are 0.75, 1.90, 1.38, and 1.16, respectively. What is the portfolio beta?

Answer 1

Portfolio Beta = 1.333

Step-by-step explanation:

The portfolio beta is the function of the weighted average of the individual stock betas that form up the portfolio. The beta is the measure of the responsiveness of the stock in comparison with the market for any change happening in the market or due to systematic risk. We can calculate the portfolio beta as follows,

Portfolio Beta = wA * Beta of A + wB * Beta of B + ... + wN * Beta of N

Where,

• w refers to the weight of each stock in the portfolio

Portfolio Beta = 0.2 * 0.75 + 0.3 * 1.9 + 0.15 * 1.38 + 0.35 * 1.16

Portfolio Beta = 1.333