Question

An individual has $30,000 invested in a stock with a beta of 0.7 and another $45,000 invested in a stock with a beta of 2.3. If these are the only two investments in her portfolio, what is her portfolio's beta? Do not round intermediate calculations. Round your answer to two decimal places.

Answer 1

Answer: Portfolio's beta = 1.66

Step-by-step explanation:

Here, it's given:

Investment in stock (1) = $30000

Beta (1) = 0.7

Investment in stock (2) = $45000

Beta (2) = 2.3

Total investment = $30000 + $45000 = $75000

Therefore, using the above given information we can calculate the individual portfolio's beta:

`Portfolio's \ beta = Beta(1)* (Investment(1))/(Total\ Investment) + Beta(2)* (Investment(2))/(Total\ Investment)`

`Portfolio's \ beta = 0.7*(30000)/(75000) + 2.3*(45000)/(75000)`

`Portfolio's \ beta = 0.7*0.4 + 2.3*0.6`

`Portfolio's \ beta = 1.66`