The beta of four stocks—G, H, I, and J—are .48, .88, 1.06, and 1.57, respectively. What is the beta of a portfolio with the following weights in each asset?
|
Weight in Stock G |
Weight in Stock H |
Weight in Stock I |
Weight in Stock J |
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|
Portfolio 1 |
25% |
25% |
25% |
25% |
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|
Portfolio 2 |
30% |
40% |
20% |
10% |
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|
Portfolio 3 |
10% |
20% |
40% |
30% |
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Portfolio of 1 beta = Weight of Stock G * Beta of G + Weight of
Stock H * Beta of H + Weight of Stock I * Beta of I + Weight of
Stock J * Beta of J = 25%*0.48+25%*0.88+25%*1.06+25%*1.57 =
0.9975
Portfolio of 2 beta = Weight of Stock G * Beta of G + Weight of
Stock H * Beta of H + Weight of Stock I * Beta of I + Weight of
Stock J * Beta of J = 30%*0.48+40%*0.88+20%*1.06+10%*1.57 =
0.8650
Portfolio of 3 beta = Weight of Stock G * Beta of G + Weight of
Stock H * Beta of H + Weight of Stock I * Beta of I + Weight of
Stock J * Beta of J = 10%*0.48+0%*0.88+40%*1.06+30%*1.57 =
0.943
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