Question

# Your investment club has only two stocks in its portfolio. \$50,000 is invested in a stock...

Your investment club has only two stocks in its portfolio. \$50,000 is invested in a stock with a beta of 0.9, and \$75,000 is invested in a stock with a beta of 1.7. What is the portfolio's beta? Do not round intermediate calculations. Round your answer to two decimal places.

Portfolio beta is the weighted average of betas of the stocks of the portfolio

= Sum of ( Weight of stocks x Respective Betas )

= Weight of Stock A x Beta of Stock A + Weight of Stock B x Beta of Stock B

Total value of given portfolio

= Value of Stock A + Value of Stock B

= \$50,000 + \$75,000

= \$125,000

So, Weight of Stock A

= Value of Stock A / Total value of portfolio

= \$50,000 / \$125,000

= 0.40

Similarly, weight of Stock B

= \$75,000 / \$125,000

= 0.60

So, Weighted average Beta of the portfolio

= 0.40 x 0.90 + 0.60 x 1.7

= 0.36 + 1.02

= 1.38

So, the weighted average beta of the portfolio is 1.38

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