Ask Question
5 June, 01:09

You hold a portfolio consisting of a $5,000 investment in each of 20 different stocks. The portfolio beta is equal to 1.12. You have decided to sell a coal mining stock (b = 1.00) at $5,000 net and use the proceeds to buy a like amount of a mineral rights company stock (b = 2.00). What is the new beta of the portfolio?

+3
Answers (1)
  1. 5 June, 04:14
    0
    The new beta of the portfolio 1.17

    Explanation:

    Portfolio beta is sum of weighted beta of all stocks consisting of it.

    Portfolio beta = 1.12

    Weight of each portfolio = 5,000

    All weight or Amount = 5,000 * 20 = 100,000

    Weight of one stock = 5,000 / 100,000 = 0.05

    Foregone beta or beta of sold stock = 1

    Acquired beta or beta of purchased stock = 2

    Weight of both are same = 0.05

    New beta = Portfolio beta - (foregone beta * weight) + (Acquired beta * weight)

    New beta = 1.12 - (1 * 0.05) + (2 * 0.05)

    New beta = 1.12 - 0.05 + 0.1

    New beta = 1.17

    So New portfolio beta is 1.17
Know the Answer?
Not Sure About the Answer?
Get an answer to your question ✅ “You hold a portfolio consisting of a $5,000 investment in each of 20 different stocks. The portfolio beta is equal to 1.12. You have ...” in 📙 Business if there is no answer or all answers are wrong, use a search bar and try to find the answer among similar questions.
Search for Other Answers