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2 June, 13:32

Suppose you hold a diversified portfolio consisting of a $7500 investment in each of 20 different common stocks. The portfolio's beta is 1.12. Now, suppose you sell one of the stocks with a beta of 1.0 for $7500 and use the proceeds to buy another stock whose beta is 1.75. Calculate your portfolio's new beta.

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  1. 2 June, 16:17
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    The beta of the portfolio is the weighted average of the individual asset betas where

    the weights are the portfolio weights.

    To get portfolio beta we will replace 1 stock of 20 or 5% of the portfolio.

    The other stocks are 95% of the portfolio. 1.12 = 0.95 (b) + 0.05*1

    b = 1.126316

    So not when we replace one and get other stock

    Portfolio beta = 0.95*1.126316 + 0.05*1.75=1.1575
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