Question

Martin Ortner holds a $200,000 portfolio consisting of the following stocks:

Stock Investment Beta
A $50,000 0.95
B 50,000 0.80
C 50,000 1.00
D 50,000 1.20
Total $200,000

What is the portfolio's beta? Select one:

(A) 0.938
(B) 0.988
(C) 1.037
(D) 1.089
(E) 1.143

Answer 1

Answer:

The portfolio's beta is 0.988

Explanation:

Hi, since all stocks account for the same amount ($50,000), and there are 4 stocks in total, each stock´s proportion in the portfolio is 25%.

In order to find the portfolio´s beta, we need to calculate the weighted average of the stock´s beta, that is:

$Beta(P.folio)=StockA(percent)*Beta(A)+StockB(percent)*Beta(B)+StockC(percent)*Beta(C)+StockD(percent)*Beta(D)$

Everything should look like this.

$Beta(P.Folio)=0.25*0.95+0.25*0.80+0.25*1.00+0.25*1.20=0.988$

So, the portfolio´s beta is 0.988 (option B).

Best of luck.