Question

1. What is the portfolio Beta? $3000 market value in stock A with βA = 0.8 and $7000 market value in stock B with βB = 1.9

Answer 1

To calculate the beta of a portfolio , we need to assign the weights to the individual stocks and weight the beta of the individual stocks to arrive at the portfolio beta by combining those stocks-

In this scenario weights of the two stocks are as follows-

Stock A = (3000/ (3000+7000))= 3000/10000= 30%

Stock B =(7000/(7000+3000)) = 7000/10000= 70%

So beta of the stocks should be assigned with their individual stocks to arrive at portfolio beta

= ( .8*30%)+ (1.9*70%)

= .24+ 1.33

= 1.57

SO Beta of the portfolio is 1.57