Question

our broker mailed you your yearminusend statement. You have​ $25,000 invested in​ Amazon, $18,000 tied up in​ Boeing, $36,000 in Caterpillar​ stock, and​ $11,000 in DuPont. The betas for each of your stocks are 1.43 for​ Amazon, .79 for​ Boeing, 1.37 for​ Caterpillar, and 1.71 for DuPont. What is the beta of your​ portfolio?

Answer 1

Answer: 1.312

Explanation:

GIVEN the following ;

INVESTMENTS :

Amazon - $25,000

Boeing - $18,000

Caterpillar - $36,000

DuPont - $11,000

BETAS :

Amazon - 1.43

Boeing - 0.79

Caterpillar - 1.37

DuPont - 1.71

To calculate the portfolio beta, Take the weighted average of each stock in the entire portfolio. This is done by taking the ratio or proportion of each stock in the portfolio to the entire stock in the portfolio. Then multiply each proportion by the beta value of each stock.

Total stock value of portfolio:

$(25,000 + 18,000 + 36,000 + 11,000) = $90,000

Therefore,portfolio beta is given by:

[(25000/90000) × 1.43] + [(18000/90000) × 0.79] + [(36000/90000) × 1.37] + [(11000/90000) × 1.71]

0.397 + 0.158 + 0.548 + 0.209 = 1.312 = 1.312

Answer 2

Answer:

The beta of the portfolio is 1.312

Explanation:

The portfolio beta is the weighted average of the individual stocks' betas that form the portfolio. To calculate the portfolio beta, we will multiply the individual stock betas by their weightage in the portfolio that can be found by the investment in stock divided by the total investment in portfolio.

Total Investment in portfolio is 25000 + 18000 + 36000 + 11000 = 90000

The portfolio beta is,

Portfolio beta = 25/90 * 1.43  +  18/90 * 0.79  +  36/90 * 1.37  +  11/90 * 1.71

Portfolio beta = 1.312