Question

Your portfolio is worth $100,000 and has a beta of 1.2. You have $40,000 of stock...

Your portfolio is worth $100,000 and has a beta of 1.2. You have $40,000 of stock A which has a beta of 1.6. The rest of your portfolio is composed of stock B with a beta of 0.7 and stock C with a beta of 1.2. What is the value of stock C in your portfolio?

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

We know that the Beta of a portfolio is the weighted average of the Indidual stocks in the Portfolio.

Let the Value of the Stock B be X in the Portfolio. Then value of stock C shall be $100000 - 40000 -x or $60000 - X. Then the process to calculate the Beta of the portfolio shall be :

Stock Value of the Stock Beta Value * Beta
Stock A 40000 1.6 64000
Stock B x 0.7 0.7x
Stock C 60000-x 1.2 72000-1.2x
Total 100000 136000 - 0.5x

Now as we know Beta is weighted Average. Thus Beta is :

(136000 - 0.5x)/ 100000.

As it is given in question that the beta of the portfolio is 1.2, we can say that,

(136000 - 0.5x)/100000 = 1.2
or,
x = $32000.

Thus the value of stock B is $32000.

Thus the value of stock C shall be $100000 - 40000 -32000 = $ 28000.

Ans : The value of Stock C in the portfolio is $28000.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
You have a portfolio consisting of only two assets: $100,000 worth of Stock A, which has...
You have a portfolio consisting of only two assets: $100,000 worth of Stock A, which has a standard deviation of returns of 10%, and $400,000 worth of Stock B, which has a standard deviation of returns of 20%. A and B have a correlation coefficient of 0.80. What is the standard deviation of returns of the portfolio?
An investor currently holds the following portfolio: 8,000 shares of Stock A, worth $15,000; Beta =...
An investor currently holds the following portfolio: 8,000 shares of Stock A, worth $15,000; Beta = 1.4 15,000 shares of Stock B, worth $47,000; Beta = 1.6 25,000 shares of Stock C, worth $96,000; Beta = 2 The investor is worried that the beta of his portfolio is too high, so he wants to sell some stock C and add stock D, which has a beta of 0.9, to his portfolio. If the investor wants his portfolio to have a...
You have a $100,000 portfolio consisting of IBM, McDonald's, and Lyft stock. You have $50,000 invested...
You have a $100,000 portfolio consisting of IBM, McDonald's, and Lyft stock. You have $50,000 invested in IBM, $30,000 in McDonald's, and $20,000 in Lyft. IBM, McDonald's, and Lyft have betas of 1.2, 0.7, and 2.1, respectively. What is your portfolio beta? Multiple Choice 1.23 1.33 1.43 1.53
Suppose you have a portfolio that has $100 in stock A with a beta of 0.9,...
Suppose you have a portfolio that has $100 in stock A with a beta of 0.9, $400 in stock B with a beta of 1.2, and $300 in the risk-free asset. You have another $200 to invest. You wish to achieve a beta for your whole portfolio to be the same as the market beta. What is the beta of the added security? Give an example of a firm that may have such a beta.
You own a $90,000 portfolio that is invested in stock A and B. The portfolio beta...
You own a $90,000 portfolio that is invested in stock A and B. The portfolio beta is equal to the market beta. Stock A has a beta of 1.2. Stock B has a beta of .76. What is the value of your investment in stock A?
IV. You currently hold a diversified portfolio with a beta of 1.1. The value of your...
IV. You currently hold a diversified portfolio with a beta of 1.1. The value of your investment is $500,000. The risk-free rate is 3%, the expected return on the market is 8%. a) Using the CAPM, calculate the expected return on your portfolio. b) Suppose you sell $10,000 worth of Chevron stock (which is currently part of the portfolio) with a beta of 0.8 and replace it with $10,000 worth of JP Morgan stock with a beta of 1.6. What...
In your portfolio, you have two stocks. You have a 50% investments in Stock A and...
In your portfolio, you have two stocks. You have a 50% investments in Stock A and 50% investment in Stock B. Stock A has a standard deviation of 25% and a beta of 1.2. Stock B has a standard deviation of 35% and a beta of 0.80. The correlation between Stock A and Stock B is 0.4. What is the standard deviation of your portfolio? (i) Less than 30% (ii) 30% (iii) More than 30% 2. What is the beta...
Consider a single factor of APT. Portfolio A has a beta of 1.2 and an expected...
Consider a single factor of APT. Portfolio A has a beta of 1.2 and an expected return of 14%. Portfolio B has a beta of 0.7 and an expected return of 9%. The risk-free rate of return is 5%. If you ____ $1000 of portfolio B, your arbitrage profit is ____.
Stock A has a beta of 1.2 and an expected return of 10%. The risk-free asset...
Stock A has a beta of 1.2 and an expected return of 10%. The risk-free asset currently earns 4%. If a portfolio of the two assets has an expected return of 6%, what is the beta of the portfolio? A) 0.3 B) 0.4 C) 0.5 D) 0.6 E) 0.7
If Stock A is 25% of your portfolio with a beta of 1.4, and stock B...
If Stock A is 25% of your portfolio with a beta of 1.4, and stock B is 45% of your portfolio with the remainder of the portfolio made up of the risk free asset; what is the beta of stock B if the portfolio beta is 1.2 A. 1.89 B. 1.98 C. 1.5 D. 1.3
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT