Question

You bought 200 shares of Dr Pepper Snapple Group at $70.67 per share, 100 shares of Home Depot at $111.72 per share, and 50 shares of Tesla Motors at $235.11 per share one year ago. Suppose that the financial data from the same period indicate that Dr Pepper Snapple Group, Inc. stock has a beta of -0.11, Home Depot, Inc. stock has a beta of 1.21, and Tesla Motors, Inc. stock has a beta of 1.4. The risk-free interest rate is 2% and the market risk premium is 6.7%. What is the beta of the portfolio?

A)1.9550
B)1.0935
C)0.7668
D)0.4828
E)0.8307

Answer 1

Answer:

d

Explanation:

Systemic risk is measured by beta. The higher beta is, the higher the systemic risk and the higher the compensation demanded for by investors

The portfolio's beta can be determined by adding together the weighted beta of each stock in the portfolio

weighted beta of a stock = percentage of the stock in the portfolio x beta of the stock  

weighted  beta of Dr Pepper Snapple Group stock = (200 / 350) x -0.11 = -0.062857.

weighted  beta of Home Depot shares = (100/350) x 1.21 =  0.345714

weighted  beta of Tesla Motors shares= (50/350) x 1.4 =  0.2

0.2 + 0.345714 -0.062857. = 0.4828