Homework Answers
The beta is computed as shown below:
Portfolio beta = Beta of stock one x weight of stock one + Beta of stock two x weight of stock two + Beta of stock three x weight of stock three + Beta of stock four x weight of stock four + Beta of stock five x weight of stock five
1.25 = 1.72 x 0.20 + 0.62 x 0.20 + 1.08 x 0.20 + 0.79 x 0.20 + Beta of stock five x 0.20
1.25 = 0.20 ( 1.72 + 0.62 + 1.08 + 0.79 + Beta of stock five)
1.25 = 0.20 ( 4.21 + Beta of stock five)
1.25 = 0.20 x 4.21 + 0.20 x Beta of stock five
1.25 = 0.842 + 0.20 x Beta of stock five
Beta of stock five = 2.04
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