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You own a portfolio that has a total value of $90,000 and a beta of 1.20....

You own a portfolio that has a total value of $90,000 and a beta of 1.20. You have another $25,000 to invest and you would like the beta of your portfolio to decrease to 1.13. What does the beta of the new investment have to be in order to accomplish this?

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Answer #1
Lets Calculate the weight of the portfolio
Amount Weight
Existing        90,000    0.78261
New        25,000    0.21739
Total      115,000    1.00000
Multiplying the weight with beta and assumed new investment beta would be x so that portfolio beta equal to 1.13
1.13=.78261*1.2+.21739x where x=required beta
x=(1.13-.78261*1.2)/.21739           0.88
Beta of the new investment would be 0.88
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