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An individual has $25,000 invested in a stock with a beta of 0.4 and another $80,000...

An individual has $25,000 invested in a stock with a beta of 0.4 and another $80,000 invested in a stock with a beta of 2.2. If these are the only two investments in her portfolio, what is her portfolio's beta? Round your answer to two decimal places.

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Answer #1

Weight of Stock with Beta of 0.4 = Investment in Stock with Beta of 0.4 / (Investment in Stock with Beta of 0.4 + Investment in Stock with Beta of 2.2)

Weight of Stock with Beta of 0.4 = $25,000 / ($25,000 + $80,000)

Weight of Stock with Beta of 0.4 = 23.81%

Weight of Stock with Beta of 2.2 = Investment in Stock with Beta of 0.4 / (Investment in Stock with Beta of 0.4 + Investment in Stock with Beta of 2.2)

Weight of Stock with Beta of 2.2 = $80,000 / ($25,000 + $80,000)

Weight of Stock with Beta of 2.2 = 76.19%

Portfolio Beta = Weight of Stock with Beta of 0.4 * Beta of Stock + Weight of Stock with Beta of 2.2 * Beta of Stock

Portfolio Beta = 23.81% * 0.4 + 76.19% * 2.2

Portfolio Beta = 1.77

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