3. An individual has $35,000 invested in a stock with a beta of 0.8 and another...

Question

Question

Answer 1

Answer #1

1.12

Step-1:Calculation of weight of investment

Value of Stock with beta of 0.8	=	35,000
Value of Stock with beta of 1.4	=	40,000

Total			75,000

So, Weight of:
Stock with beta of 0.8		35,000	/	75,000	=	0.4667
Stock with beta of 1.4		40,000	/	75,000	=	0.5333

Total							1.0000

Step-2:Calculation of portfolio beta

Portfolio beta is the weighted average beta which is calculated as follows:

Portfolio Beta	=	(W1B1)+(W2B2)
	=	(0.46670.8)+(0.53331.4)
	=	1.12

Where,
W1	=	Weight of Stock 1	=	0.4667
B1	=	Beta of Stock 1	=	0.8
W2	=	Weight of Stock 2	=	0.5333
B2	=	Beta of Stock 2	=	1.4

Answer 2

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