Question

An individual has $45,000 invested in a stock with a beta of 0.4 and another $65,000 invested in a stock with a beta of 1.7 . 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

The portfolio's beta can be calculated by finding the weighted average of the individual betas based on the investment amounts.

Step-by-step explanation:

To calculate the portfolio's beta, we need to find the weighted average of the individual betas based on the investment amounts.

The formula to calculate the portfolio beta is:

Portfolio Beta = (Amount Invested in Stock A x Beta of Stock A) + (Amount Invested in Stock B x Beta of Stock B) / Total Amount Invested in the Portfolio

For this portfolio, the calculation would be:

Portfolio Beta = ($45,000 x 0.4) + ($65,000 x 1.7) / ($45,000 + $65,000)

After calculating, the portfolio's beta is approximately 1.18.