Question

Trevor Ang holds a $400,000 portfolio consisting of the following stocks:

Stock Investment Beta
A $100,000 1.40
B $70,000 1.60
C $30,000 1.10
D $200,000 1.00
Total $400,000

What is the portfolio's beta?

Answer 1

Answer:

Portfolio beta = 1.2125

Explanation:

The portfolio beta is a function of the weighted average of the individual stocks' betas that form up the portfolio. To calculate the beta of a portfolio, we use the following formula,

Portfolio Beta = wA * Beta of A  +  wB * Beta of B  + ... + wN * Beta of N

Where,

w is the weight of each stock

Portfolio Beta = 100000/400000 * 1.4  +  70000/400000 * 1.6  +  

30000/400000 * 1.1  +  200000/400000 * 1

Portfolio beta = 1.2125