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Serggg [28]
3 years ago
5

Suppose you held a diversified portfolio consisting of a $7,500 investment in each of 20 different common stocks. The portfolio'

s beta is 0.65. Now suppose you decided to sell one of the stocks in your portfolio with a beta of 1.0 for $7,500 and use the proceeds to buy another stock with a beta of 1.50. What would your portfolio's new beta be
Business
1 answer:
agasfer [191]3 years ago
4 0

Answer:

0.68

Explanation:

A portfolio consists of an investment of $7,500

The amount of common stock is 20

The portfolio beta is 0.65

Suppose one of the stock in the portfolio is sold with a beta of 1.0 for $7,500

The proceeds realized is then used to purchase another stock with a beta of 1.50

The first step is the to calculate the change in beta

Change in beta= 1.50-1

= 0.5

The next step is to divide the change in beta by the number of common stock

= 0.5/20

= 0.025

Therefore, the new beta can be calculated as follows

= 0.65+0.025

= 0.68

Hence the new portfolio's beta is 0.68

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r = 9.86%

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PV = present value = $10,000

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n = number of compounding period per year = 1

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dividing both sides by 10,000

\frac{16000}{10000} =\frac{10000(1+\frac{r}{1})^{5}}{10000}

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to remove the power of 5, we have to take the 5th root of both sides:

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Using your calculator:

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∴ r = 1.09856 - 1 = 0.09856

r = 0.0986 = 9.86%

∴ r = 9.86%

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