Question

Wagner Assets Management Group holds 3 stocks in their investment portfolio. The amount of the investment and beta of each stock is listed below.
Stock Investment Beta
A $ 200,000 1.50
B 300,000 ??
C 500,000 1.20
If the beta of the portfolio is 0.75, what is the beta of stock B?

Answer 1

Answer:

-0.5

Explanation:

Stock  Investment (W)    Beta (B)        W*B

A            200,000             1.50             300,000

B            300,000               X                300,000X

C            500,000             1.20             600,00

            1,000,000                                 900,000+300,000X

Using the formula of Beta of Portfolio to find out X

0.75 = 900,000 + 300,000X / 1,000,000

0.75 * 1,000,000 = 900,000 + 300,000X

750,000 = 900,000 + 300,000X

750,000 - 900,000 = 300,000X

-150,000 = 300,000X

X = -150,000 / 300,000

X = -0.5  

So, the beta of stock B is -0.5.