Question

26) A portfolio has 40% invested in stock A and the rest invested in stock B. If stock A has a beta of 1.3 and stock B has a beta of 0.9, what’s the beta of the portfolio?

27) Calculate the standard deviation of a portfolio that contains 40% of one stock with a standard deviation of 27% and 60% of another stock with a standard deviation of 13% and the correlation of their stock returns is 0.9. (Enter your answer as a decimal rounded to 4 decimal places, not a percentage. For example, enter .0153 instead of 1.53%.)

Answer 1

26.

Portfolio Beta = Weighted Average Beta of all the Assets

$Portfolio Beta = \sum_{i=1}^{n} w_i\beta_i$

Portfolio Beta = 0.40(1.3) + 0.60(0.9)

Portfolio Beta = 0.52 + 0.54

Portfolio Beta = 1.06

27.

Portfolio Standard Deviation = w²_A*σ²(R_A) + w²_B*σ²(R_B) + 2*(w_A)*(w_B)*σ(R_A)*σ(R_B)*Correlation

Here,

w_A = 0.40

w_B = 0.60

σ(R_A) = 0.27

σ(R_B) = 0.13

Correlation = 0.9

Portfolio Standard Deviation = 0.1814