Question

Your portfolio has a beta of 1.28. The portfolio consists of 35 percent U.S. Treasury bills, 31 percent Stock A, and 34 percent Stock B. Stock A has a risk-level equivalent to that of the overall market. What is the beta of Stock B?

Answer 1

Answer:

2.85

Explanation:

U.S. Treasury bills are a risk-free asset, and thus have a beta of zero. Since Stock A has a risk-level equivalent to that of the overall market, its beta is one. Therefore, the beta for Stock B can be found by:

$1.28=0.35\beta_{T}+0.31\beta_{A}+0.34\beta_{B}\\1.28 = 0.35*0+0.31*1+0.34\beta_{B}\\\beta_{B}=\frac{1.28-0.31}{0.34}\\ \beta_{B}=2.85$

The beta of Stock B is 2.85.