Question

Calculate the portfolio Beta. $4000 market value in stock A with β_A = 0.5, $6000 market value in stock B with β_B = 2.5, and $10,000 market value in stock C with β_C = 1.3.

Answer 1

The beta of portfolio is computed as shown below:

= Beta of stock A x weight of stock A + Beta of stock B x weight of stock B + Beta of stock C x weight of stock C

= 0.5 x [ ($ 4,000) / ( $ 4,000 + $ 6,000 + $ 10,000) ] + 2.5 x [ ($ 6,000) / ( $ 4,000 + $ 6,000 + $ 10,000) ] + 1.3 x [ ($ 10,000) / ( $ 4,000 + $ 6,000 + $ 10,000) ]

= 0.5 x $ 4,000 / $ 20,000 + 2.5 x $ 6,000 / $ 20,000 + 1.3 x $ 10,000 / $ 20,000

= 0.10 + 0.75 + 0.65

= 1.50

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