Answer: -0.24
Explanation:
The portfolio beta is a weighted average of the betas of the individual stocks in it.
The portfolio beta before the replacement is;
= (1.4 * 150,000/375,000) + (0.8 * 50,000/375,000) + ( 1 * 100,000/375,000) + (75,000 * 75,000/375,000)
= 0.56 + 0.11 + 0.27 + 0.24
= 1.17
After the replacement, portfolio beta will be;
= (0.75 * 150,000/375,000) + (0.8 * 50,000/375,000) + ( 1 * 100,000/375,000) + (75,000 * 75,000/375,000)
= 0.32 + 0.11 + 0.27 + 0.24
= 0.93
The change is therefore;
= 0.93 - 1.17
= -0.24
