Question

Dylan's portfolio consists of three stocks: TSLA, 30%, beta 0.55; BAC, 30%, beta 1.45; and Costco,...

  1. Dylan's portfolio consists of three stocks: TSLA, 30%, beta 0.55; BAC, 30%, beta 1.45; and Costco, 40%, beta 0.94. Compute Dylan’s portfolio beta.

    A

    0.98
    B

    1.22
    C

    1.13
    D

    0.85
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Homework Answers

Answer #1

Answer: Option A is correct.
Portfolio beta is calculated as:
Portfolio beta=(% of TSLA in the portfolio)*(Beta of TSLA)+(% of BAC in the portfolio)*(Beta of BAC)+(% of Costco in the portfolio)*(Beta of Costco)

Given that:

Percentage of TSLA in the portfolio=30%
Beta of TSLA=0.55

Percentage of BAC in the portfolio=30%
Beta of BAC=1.45

Percentage of Costco in the portfolio=40%
Beta of Costco=0.94

Substituting these values in the equation we get:
Portfolio beta=30%*0.55+30%*1.45+40%*0.94
=0.165+0.435+0.376
=0.976 or 0.98 (Rounded to two decimal places)

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