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Anettt [7]
3 years ago
10

Tom O'Brien has a 2-stock portfolio with a total value of $100,000. $47,500 is invested in Stock A with a beta of 0.75 and the r

emainder is invested in Stock B with a beta of 1.42. What is his portfolio's beta
Business
1 answer:
Degger [83]3 years ago
4 0

Answer:

1.10

Explanation:

The computation of portfolio's beta is shown below:-

= Stock A Beta × Invested in Stock A ÷ Total value + Stock B Beta × (Total value - Invested in Stock A) ÷ Invested in Stock A

= 0.75 × $47,500 ÷ $100,000 + 1.42 × ($100,000 - $47,500) ÷ $100,000

= 0.75 × $47,500 ÷ $100,000 + 1.42 × $52,500 ÷ $100,000

= 0.75 × 0.475 + 1.42 × 0.525

= 0.35625 + 0.7455

= 1.10175

or

= 1.10

Therefore for computing the portfolio beta we simply applied the above formula.

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