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Your retirement fund consists of a $5,000 investment in each of 18 different common stocks. The portfolio's beta is 1.10. Suppose you sell one of the stocks with a beta of 0.5 for $5,000 and use the proceeds
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Your retirement fund consists of a $5,000 investment in each of 18 different common stocks. The portfolio's beta is 1.10. Suppose you sell one of the stocks with a beta of 0.5 for $5,000 and use the proceeds to buy another stock whose beta is 1.5. Calculate your portfolio's new beta. Do not round intermediate calculations. Round your answer to two decimal places.

User Eric LaForce
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1 Answer

4 votes

Answer: 1.13

Step-by-step explanation:

New Beta = Beta + Increase in beta per portfolio

Increase in beta as a result of purchase of new stock

= New stock beta - sold stock beta

= 1.5 - 0.5

= 0.5

Increase in bet per portfolio

= 0.5/18 stock

= 0.02778

New Beta = 1.1 + 0.02778

= 1.12778

= 1.13

User Juan Aguilar Guisado
by
5.0k points
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