Question

Tom Hank’s 2-stock portfolio has a total value of $100,000. $60,000 is invested in Stock A with a beta of 1.3 and the remainder is invested in Stock B with a beta of .65. What is her portfolio's beta? (2pts)

a. 1.35

b. 1.23

c. 1.04

d. 1.17

e. 1.42

Answer 1

Option c is correct

Total Value = $100,000

Investment in Stock A = $60,000

Investment in Stock B = $100,000 - $60,000 = $40,000

Weight of Stock A = Investment in Stock A / Total Value = $60,000 / $100,000 = 0.6 = 60%

Weight of Stock B = Investment in Stock B / Total Value = $40,000 / $100,000 = 0.4 = 40%

Beta of Stock A = 1.30

Beta of Stock B = 0.65

Portfolio beta = [Weight of Stock A * Beta of Stock A] + [Weight of Stock B * Beta of Stock B]

= [60% * 1.30] + [40% * 0.65]

= 0.78 + 0.26

= 1.04

Therefore, Portfolio beta is 1.04