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You own 400 shares of Stock A at a price of $75 per share, 490 shares of Stock B at $90 per share, and 750 shares of Stock C

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Answer #1

The beta of the portfolio is computed as shown below:

Value of stock A is computed as follows:

= 400 x $ 75

= $ 30,000

Value of stock B is computed as follows:

= 490 x $ 90

= $ 44,100

Value of stock C is computed as follows:

= 750 x $ 32

= $ 24,000

So the total value of stock A, B and C will be:

= $ 30,000 + $ 44,100 + $ 24,000

= $ 98,100

So the beta of the portfolio will be:

Beta of A x Value of stock A / Total value of Stock A, B and C + Beta of B x Value of stock B / Total value of Stock A, B and C + Beta of C x Value of stock C / Total value of Stock A, B and C

= 1.2 x $ 30,000 / $ 98,100 + 1.7 x $ 44,100 / $ 98,100 + 0.6 x $ 24,000 / $ 98,100

= 1.28 Approximately

Feel free to ask in case of any query relating to this question

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