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olga_2 [115]
3 years ago
7

You hold a diversified portfolio consisting of a $10,000 investment in each of 15 different common stocks (i.e., your total inve

stment is $150,000). The portfolio beta is equal to 1.3 . You have decided to sell one of your stocks which has a beta equal to 1.6 for $10,000. You plan to use the proceeds to purchase another stock which has a beta equal to 1.3 . What will be the beta of the new portfolio
Business
1 answer:
yarga [219]3 years ago
7 0

Answer: 1.28

Explanation:

The portfolio beta is a weighted average of the investments in the portfolio.

The new beta will therefore be;

= Portfolio beta - weighted beta of stock being sold + weighted beta of stock to be added

= 1.3 + ( 10,000/150,000 * 1.6) + ( 1.3 * 10,000/150,000)

= 1.3 - 0.11 + 0.09

= 1.28

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