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Consider the following information for three stocks, A, B, and C that can be put into...

Consider the following information for three stocks, A, B, and C that can be put into portfolios with the following allocations.

  • Portfolio AC has 80% of its funds invested in Stock A and 20% in Stock C.
  • Portfolio BC has 20% of its funds invested in Stock B and 80% in Stock C.
  • Portfolio ABC has one third of its funds invested in each of the three stocks.
Stock Expected Return Standard Deviation Beta
A 10% 20% 1.0
B 10% 10% 1.0
C 12% 12% 1.5

Calculate the Beta of Portfolio BC to the second decimal place.

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Answer #1

Beta of Portfolio BC is 1.40

We see that the beta of portfolio BC is given as=20%*1.0+80%*1.5=1.40

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