Question

You own $18,879 of Olympic Steel stock that has a beta of 2.82. You also own $21,924 of Rent-a-Center (beta = 1.84) and $20,097 of Lincoln Educational (beta = 0.85).

What is the beta of your portfolio? (Round your answer to 2 decimal places.)

Answer 1

Firstly we will need to calculate the weights of the particular stock.

Total portfolio value= (18879+21924+20097)

= 60,900

Weight of Olympic steel= (18879/60900)= 31%

Weight of Rent a center=( 21924/60900)= 36%

Weight of Lincon educational=(20097/60900)= 33%

Beta of the portfolio=(weight of Olympic Steel X beta of Olympic Steel)+(weight of rant center X beta of rent center)+(weight of Lincoln educational X beta of Lincoln educational)

=(2.82*.31)+(1.84*.36)+(.85*.33)

=(.8742+.6624+.2805)

=1.8171

Beta of portfolio= 1.8171 or 1.82(approximately)