Answer:
The correct answer is 1.12.
Explanation:
According to the scenario, the given data are as follows:
First investment = $35,000
Beta for first investment = 0.8
Second investment = $40,000
Beta for second investment = 1.4
Total portfolio value = $35,000 + $40,000 = $75,000
So, we can calculate her portfolio’s beta by using following formula:
Portfolio beta = Average beta (first stock) + Average beta (second stock)
where, Average beta (first stock) = 0.8 × $35,000 ÷ $75,000
= 0.37
And Average beta (second stock) = 1.4 × $40,000 ÷ $75,000
= 0.75
So, by putting the value, we get
Portfolio beta = 0.37 + 0.75
= 1.12
Hence, The portfolio beta for two investments is 1.12.
