Question

Beta of a portfolio. The beta of four stocks-G, H, I, and J-are 0.49, 0.78, 1.16, and 1.51, respectivelly. What is the beta of a portfolio with the following weights in each asset:? What is the beta of portfolio 1? (Round to two decimal places.) - X i Data Table in order to copy its contents into a spreadsheet.) (Click on the following icon Weight in Stock H Weight in Stock G Weight in Stock Weight in Stock J Portfolio 1 25% 25% 25% 25% Portfolio 2 40% 20% 30% 20% 10% Portfolio 3 10% 40% 30% Print Done Enter your answer in the answer box and then click Check Answer. parts remaining Clear All Check Answer

Answer 1

Beta of portfolio 1 is 0.895

Beta of portfolio 2 is 0.806

Beta of portfolio 3 is 1.014

Explanation:

βp = w1 x β1 + w2 x β2 + w3 x β3 + w3 x β3 + …

βp = Beta of Portfolio

w1, w2, w3, w4 …= Weight of 1^st ,2^nd, 3^rd, 4^th investment etc …

β1, β1, β1, β1…= Beta of 1^st ,2^nd, 3^rd, 4^th investment etc …

Computation of beta of portfolio 1:

βp1 = (25 % x 0.49) + (25 % x 0.78) + (25 % x 1.16) + (25 % x 1.15)

        = (0.25 x 0.49) + (0.25 x 0.78) + (0.25 x 1.16) + (0.25 x 1.15)

        = 0.1225 + 0.195 + 0.29 + 0.2875 = 0.895

Computation of beta of portfolio 2:

βp2= (30 % x 0.49) + (40 % x 0.78) + (20 % x 1.16) + (10 % x 1.15)

       = (0.3 x 0.49) + (0.4 x 0.78) + (0.2 x 1.16) + (0.1 x 1.15)

        = 0.1470 + 0.312 + 0.232 + 0.115 = 0.806

Computation of beta of portfolio 3:

βp3 = (10 % x 0.49) + (20 % x 0.78) + (40 % x 1.16) + (30 % x 1.15)

        = (0.1 x 0.49) + (0.2 x 0.78) + (0.4 x 1.16) + (0.3 x 1.15)

        = 0.049 + 0.156 + 0.464 + 0.345 = 1.014