Question

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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