Question

Your investment club has only two stocks in its portfolio. $25,000 is invested in a stock with a beta of 0.8, and $40,000 is invested in a stock with a beta of 1.7. What is the portfolio's beta? Do not round intermediate calculations. Round your answer to two decimal places.

Answer 1

Answer:

The portfolio beta is  $\alpha = 1.354$

Step-by-step explanation:

From the question we are told that

      The  first investment is $i_1 = \ 25,000$

       The  first  beta is  $k = 0.8$

      The second investment is  $i_2 = \ 40,000$

       The  second  beta is  $w = 1.7$

Generally the portfolio beta is mathematically represented as

           $\alpha = \frac{ i_1 * k + i_2 * w }{ i_1 + i_2}$

substituting values

          $\alpha = \frac{ (25000 * 0.8) + ( 40000* 1.7 ) }{40000 + 25000}$

          $\alpha = 1.354$