Question

Your investment club has only two stocks in its portfolio. $10,000 is invested in a stock with a beta of 0.4, and $40,000 is invested in a stock with a beta of 1.2. What is the portfolio's beta? Do not round intermediate calculations. Round your answer to two decimal places.

Answer 1

Answer:

Portfolio's beta is 1.04.

Explanation:

Portfolio's beta is the weighted average beta. So, take weightage of each stock, multiply it with the respective beta, and add the results.  

Finding Portfolio value for Weightages:

Total Amount Invested OR Portfolio value is = 10,000 + 40,000 = $50,000

Weighted Average Beta:

(10,000 / 50,000) * (.4) + (40,000 / 50,000) * (1.2) = .08 + .96 = 1.04.

Thanks!