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An individual has $25,000 invested in a stock with a beta of 0.3 and another $75,000...

An individual has $25,000 invested in a stock with a beta of 0.3 and another $75,000 invested in a stock with a beta of 1.8. If these are the only two investments in her portfolio, what is her portfolio's beta? Do not round intermediate calculations. Round your answer to two decimal places.

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Answer #1

Stock 1

Amount invested in stock 1 = 25000 $

Beta of stock 1 = 0.3

Stock 2

Amount invested in stock 1 = 75,000 $

Beta of stock 1 = 1.8

Total portfolio investment = 25000 + 75000

= 100,000 $

Weightage of Stock 1 in portfolio = 25000 / 100,000

= 0.25

Weightage of Stock 2 in portfolio = 75000 / 100,000

= 0.75

Portfolio beta can be calculated by multiplying individual stock beta with the proportion of funds in that stock and than adding the weighted beta of each stock.

Portfolio beta = 0.25 * 0.3 + 0.75 * 1.8

= 0.075 + 1.35

= 1.425

Portfolio beta = 1.425

Hope it helps!

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