Question

An individual has $32,000 invested in a stock with a beta of 1.1 and another $48,000 invested in a stock with a beta of 1.3 If these are the only two investments in her portfolio, what is her portfolio's beta?

Answer 1

Answer:

The beta of the portfolio is 1.22

Explanation:

In calculating the beta of the whole portfolio, we can calculate the weighted average beta of each stock .The sum of all weighted betas give the beta of the entire portfolio.

Beta of portfolio=amounted in first stock/entire amount invested*beta of the first+amount invested in second stock/entire amount invested *beta of the second stock

Beta of portfolio=($32000/($32000+$42000))*1.1+($48000/($32000+$48000))*1.3

Beta of portfolio=1.22