Question

Your investment club has only two stocks in its portfolio. $25,000 is invested in a stock with a beta of 0.8, and $40,000 is invested in a stock with a beta of 1.7. What is the portfolio's beta? Do not round intermediate calculations. Round your answer to two decimal places.

Answer 1

The portfolio beta is
`\alpha = 1.354`

Explanation:

From the question we are told that

The first investment is
`i_1 = \$ 25,000`

The first beta is
`k = 0.8`

The second investment is
`i_2 = \$ 40,000`

The second beta is
`w = 1.7`

Generally the portfolio beta is mathematically represented as

`\alpha = ( i_1 * k + i_2 * w )/( i_1 + i_2)`

substituting values

`\alpha = ( (25000 * 0.8) + ( 40000* 1.7 ) )/(40000 + 25000)`

`\alpha = 1.354`