Question

You own a stock portfolio invested 25 percent in Stock Q, 15 percent in Stock R, 15 percent in Stock S, and 45 percent in Stock T. The betas for these four stocks are 1.12, 1.38, 0.67, and 0.84, respectively. What is the portfolio beta? Multiple Choice 1.01 0.95 0.98 0.92 0.97

Answer 1

Option (d) is correct

The formula for calculation of portfolio beta is given by the following formula:

Portfolio beta = w1 * b1 + w2*b2 + w3*b3 + w4*b4

where, w1 is the weight or percentage of stock 1

b1 is beta of stock 1

w2 is the weight or percentage of stock 2

b2 is beta of stock 2

w3 is the weight or percentage of stock 3

b3 is beta of stock 3

w4 is the weight or percentage of stock 4

b4 is beta of stock 4

Now, putting the values of the weights and their betas in the above formula, we get,

Portfolio beta = (25% * 1.12 ) + (15% * 1.38) + (15% * 0.67) + (45% * 0.84)

Portfolio beta = 0.28 + 0.207+ 0.1005 + 0.378

Portfolio beta = 0.97