Question

Calculation and Explanation please

8. What is the beta of a portfolio consisting of $2,000 cash, $5,000 invested in a stock with a beta of 1.6, and $3,000 invested in a well-diversified portfolio? A) B) C) D) E) 0.767 0.867 1.100 1.375 1.600

Answer 1

C.1.10.

working:

beta is the risk associated with an asset or investment.

beta associated with cash = 0.

beta associated with stock = 1.6 given.

beta of well diversified portfolio = 1.0.

now ,

beta of portfolio:

asset	beta	weight	beta* weight
cash	0	(2,000/10,000)=>0.20	0*0.20=>0
stock	1.6	(5,000/10,000)=>0.50	1.6*0.50=>0.80
well diversified portfolio	1.0	(3,000/10,000)=>0.30	1.0*0.30=>0.30
		beta of given portfolio	1.10