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an individual has $25,000 invested in a stock with a beta of 0.8 and another $40,000...

an individual has $25,000 invested in a stock with a beta of 0.8 and another $40,000 invested in a stock with a beta of 1.6 if these are the only two investments in the portfolio what is her portfolios beta do not round intermediate calculations
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Answer #1

Sol:

Investment in stock 1 = $25,000

Beta of stock 1 = 0.8

Investment in stock 2 = $40,000

Beta of stock 2 = 1.6

Total investment = Investment in stock 1 + Investment in stock 2

Total investment = $25,000 + $40,000 = $65,000

Portfolio Beta = (Beta of stock 1 x Investment in stock 1 / Total investment) + (Beta of stock 2 x Investment in stock 2 / Total investment)

Portfolio Beta = (0.8 x 25000 / 65000) + (1.6 x 40000 / 65000)

Portfolio Beta = 0.30769 + 0.98462 = 1.29

Portfolio Beta will be 1.29

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