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13 July, 10:42

Tom O'Brien has a 2-stock portfolio with a total value of $100,000. $47,500 is invested in Stock A with a beta of 0.75 and the remainder is invested in Stock B with a beta of 1.42. What is his portfolio's beta

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  1. 13 July, 11:34
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    1.10

    Explanation:

    The computation of portfolio's beta is shown below:-

    = Stock A Beta * Invested in Stock A : Total value + Stock B Beta * (Total value - Invested in Stock A) : Invested in Stock A

    = 0.75 * $47,500 : $100,000 + 1.42 * ($100,000 - $47,500) : $100,000

    = 0.75 * $47,500 : $100,000 + 1.42 * $52,500 : $100,000

    = 0.75 * 0.475 + 1.42 * 0.525

    = 0.35625 + 0.7455

    = 1.10175

    or

    = 1.10

    Therefore for computing the portfolio beta we simply applied the above formula.
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