Stock 
A 
B 
C 
D 
E 
Amount 
$1,000,000 
675,000 
750,000 
500,000 
75,000 
Beta 
1.2 
0.5 
1.4 
0.75 
1.3 
Assume the portfolio manager has invested $3 million in the following common stocks, what is the beta of the portfolio?
A.
0.96 

B.
1.02 

C.
0.51 

D.
1.03 
answers C is incorrect. which one is correct and why?
Answer  Option (a) = 0.96
Calculation :
Total Amount Invested = $3million or $3000000
Step 1  Find out the weights of each stock :
Weight of Stock A = $1000000 / $3000000 = 0.333333
Weight of Stock B = $675000 / $3000000 = 0.225
Weight of Stock C = $750000 / $3000000 = 0.25
Weight of Stock D = $500000 / $3000000 = 0.166667
Weight of Stock E = $75000 / $3000000 = 0.025
Step 2  Calculate Weighted Average of Beta :
Beta A = 0.333333 x 1.2 = 0.40
Beta B = 0.225 x 0.5 = 0.1125
Beta C = 0.25 x 1.4 = 0.35
Beta D = 0.166667 x 0.75 = 0.125
Beta E = 0.025 x 1.3 = ()0.0325
Step 3  Calculate Beta of the Portfolio by simply adding all the Beta's calculated in Step 2
Beta of the Portfolio = 0.40 + 0.1125 + 0.35 + 0.125 + ()0.0325
Beta of the Portfolio = 0.955 or 0.96
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