Question

You have a $43,000 portfolio consisting of Ford, Toyota, and Burger Queen. You put $22,000 in Ford, $9,200 in Toyota, and the rest in Burger Queen. Ford, Toyota, and Burger Queen have betas of 1.3, 1, and .8, respectively. What is your portfolio beta?

Answer 1

The portfolio beta is computed as shown below:

= Beta of Ford x weight of Ford + Beta of Toyota x weight of Toyota + Beta of Burger Queen x weight of Burger Queen

= 1.3 x ($ 22,000 / $ 43,000) + 1 x ($ 9,200 / $ 43,000) + 0.8 x [ ($ 43,000 - $ 22,000 - $ 9,200) / ($ 43,000) ]

= 1.3 x ($ 22,000 / $ 43,000) + 1 x ($ 9,200 / $ 43,000) + 0.8 x ($11,800 / $ 43,000)

= 1.0986 Approximately

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