SHOW WORK PLEASE
Complete problem: Portfolio Beta You have a $4 million portfolio consisting of a $100,000 investment in each of 20 different stocks. The portfolio has a beta of 1.1. You are considering selling $100,000 worth of one stock with a beta of 0.9 and using the proceeds to purchase another stock with a beta of 1.4. What will the portfolio’s new beta be after these transactions? Show your work.
Solution :-
There is a little mistake in Question as It is $2 millions in place of $4 millions Because $100,000 investment in each of 20 different stock
Stocks in portfolio = 20
Worth of each stock in the portfolio = 100,000 dollars.
Portfolio has a beta = 1.1
This is the average of the beta of all the stocks in your portfolio.
Sell one stock that has a beta of .9 and using the proceeds to purchase another stock with a beta of 1.4.
the impact on your portfolios beta =
the $100,000 stock is worth 100,000 / 2,000,000 = .05 of your portfolio
your portfolio's beta is 1.1
you subtract .05 * .9 from it and you add .05 * 1.4 to it.
the resulting impact on the portfolio beta should be:
= 1.1 - .05*.9 + .05*1.4 = 1.125
your portfolios beta after the transaction is equal to 1.125
SHOW WORK PLEASE Complete problem: Portfolio Beta You have a $4 million portfolio consisting of a...
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