Question

Bill Dukes has $100,000 invested in a 2-stock portfolio. $35,000 is invested in Stock X and the remainder is invested in Stock Y. X's beta is 1.50 and Y's beta is 0.70. What is the portfolio's beta?

Answer 1

Answer:

The portfolio's beta is 0.98

Explanation:

Stock beta id the weghted average beta of a portfolio, Use following formula to calculate the portfolio beta

Portfolio beta = ( Beta of stock X x Weight of Stock X ) + ( Beta of stock Y x Weight of Stock Y )  

As per given data

Stock ______ Amount Invested ______ Beta

X _________ $35,000 _____________ 1.50

Y _________ $65,000 _____________ 0.70   ( $100,000 - $35,000 )

Placing values in the fromula

Portfolio beta = ( 1.50 x $35,000/$100,000 ) + ( 0.70 x $65,000/$100,000 )

Portfolio beta = 0.525 + 0.455

Portfolio beta = 0.98