Question

You hold a diversified $100,000 portfolio consisting of 20 stocks with $5,000 invested in each. The portfolio's beta is 1.12. You plan to sell a stock with b = 0.90 and use the proceeds to buy a new stock with b = 1.50. What will the portfolio's new beta be? Do not round your intermediate calculations.

Answer 1

Answer:

1.15

Explanation:

A diversified portfolio consists of $100,000 with 20 stocks and $5,000 invested in each of the stock

The portfolio beta is 1.12

You plan to sell a stock with a beta of 0.90, the proceeds gotten from it will be used to purchase a new stock with a beta of 1.50

Therefore, the portfolio's new beta can be calculated as follows

= (20×1.12-0.9+1.50)/20

= (22.4-0.9+1.50)/20

= 23/20

= 1.15

Hence the portfolio's new beta is 1.15