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A portfolio consists of the following: $4,000 of stock A with beta of 1.2, $3,000 of...

A portfolio consists of the following: $4,000 of stock A with beta of 1.2, $3,000 of stock B with beta of 1.41, and $8,000 of U.S. Treasury bills. What is the portfolio beta?

Please show all formulas.

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Answer #1


Total Value in portfolio = TV = Value in Stock A + Value in Stock B + Value in US treasury bills = 4000 + 3000 + 8000 = $15000

* US treasury bills have Beta of “0”

Beta of portfolio = Beta of A x Value in Stock A/Total Value + Beta of B x Value in Stock B/Total Value + Beta of US treasury bills x Value in US treasury bills/Total Value

Beta of portfolio = 1.2 x 4000/15000 + 1.41 x 3000/15000 + 0 x 8000/15000

Beta of portfolio = 0.6020

or

Beta of portfolio = 0.60 (two decimal rounding)

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