Question

Suppose Stan holds a portfolio consisting of a $10,000 investment in each of 8 different common stocks. The portfolio's beta is 1.25. Now suppose Stan decided to sell one of his stocks that has a beta of 1.00 and to use the proceeds to buy a replacement stock with a beta of 1.35. What would the portfolio's new beta be?a. 1.17b. 1.23c. 1.29d. 1.36e. 1.43

Answer 1

Answer:

c. 1.29

Explanation:

Change in portfolio beta = weight * (change in security beta) = .125 * (1.35-1) = .04375

New portfolio beta = 1.25 + .04375 = 1.29375 (c. 1.29 is the correct answer )