Question

Your investment club has only two stocks in its portfolio. $20,000 is invested in a stock with a beta of 0.7, and $35,000 is invested in a stock with a beta of 1.3. What is the portfolio’s beta?

Answer 1

Answer:

Beta of the portfolio will be 1.08

Explanation:

We have given investment in stock 1 = $20000

And investment in stock 2 is = $35000

So total investment = $20000+$35000 = $55000

Weight of stock 1 $=\frac{20000}{55000}=0.3636$

Weight of stock 2 $=\frac{35000}{55000}=0.6363$

Beta of stock 1 = 0.7

Beta of stock 2 = 1.3

We have to find the portfolio's beta

Portfolio's beta will be equal to = Weight of stock 1×beta of stock 1 +Weight of stock 2×beta of stock 2 = 0.3636×0.7+0.6363×1.3 = 1.08

So beta of the portfolio will be 1.08