Question

You own a stock portfolio invested 15% in Stock Q, 15% in Stock R, 20% in Stock S, and 50% in Stock T. The betas for these four stocks are 0.84, 1.17, 1.08, and 1.36, respectively. What is the portfolio beta? (Do not round intermediate calculations. Round the final answer to 3 decimal places.)

Answer 1

Solution

Calculation of beta of portfolio

Stock	stock Beta	Weight	Weighted beta
(1)	(2)	(3)	(4)=(2*3)
Q	.84	.15	.126
R	1.17	.15	.1755
S	1.08	.20	.216
T	1.36	.50	.68
		Portfolio Beta	1.1975

                         Hence Portfolio beta = 1.198 (rounded off to 3 decimal places)

Alternatively we can also calculate beta of portfolio as below

Portfolio Beta= Beta of stock * weight of stock

Portfolio Beta = (.84*.15)+(1.17*.15)+(1.08*.20)+(1.36*.5)

Portfolio Beta = .126+.1755+.216+.68

Portfolio beta = 1.1975

Portfolio Beta = 1.198 ( rounded off)