Question

Consider the following portfolio of securities: Company Beta Market Value Lowe's Companies, Incorporated (Ticker: LOW) 1.08 $7,384 Norfolk Southern Corporation (Ticker: NSC) 1.34 $35,355 Caterpillar, Incorporated (Ticker: CAT) 1.23 $53,295 Duke Energy Corporation (Ticker: DUK) 0.98 $18,854 AT & T, Incorporated (Ticker: T) 0.95 $10,516 Total Value of the Portfolio: $125,404 The portfolio beta (Bp) is: 1.22 19.47 1.12 1.19

Answer 1

Beta of the portfolio is weighted average beta of its assets.

beta is calculated in the table below:

Weight = market value of stock/total value of portfolio

Weighted beta = beta of stock* it's weight

So, beta of the portfolio is sum of weighted beta of each stock = 1.19

Company	Beta	Market Value	Weight	Weighted beta
LOW	1.08	$             7,384	5.89%	0.0636
NSC	1.34	$           35,355	28.19%	0.3778
CAT	1.23	$           53,295	42.50%	0.5227
DUK	0.98	$           18,854	15.03%	0.1473
T	0.95	$           10,516	8.39%	0.0797
Total value of portfolio		$       1,25,404	Portfolio beta	1.19

So, option D is correct.