Question

An individual has $10,000 invested in a stock with a beta of 0.8 and another $55,000 invested in a stock with a beta of 1.5. If these are the only two investments in her portfolio, what is her portfolio's beta? Round your answer to two decimal places.

Answer 1

To find the portfolio's beta, calculate the weighted average of the individual stock betas based on their investments.

Step-by-step explanation:

To find the portfolio's beta, you need to calculate the weighted average of the individual stock betas based on their investments. The formula for weighted average is:

Beta of Portfolio = (Value of Investment in Stock 1 / Total Portfolio Value) * Beta of Stock 1 + (Value of Investment in Stock 2 / Total Portfolio Value) * Beta of Stock 2

Plugging in the values, we get:

Beta of Portfolio = (10,000 / 65,000) * 0.8 + (55,000 / 65,000) * 1.5

Calculating this equation results in a portfolio beta of approximately 1.28.