hold a portfolio consisting of a $5,000 investment in each of 20 different stocksThe portfolio beta is equal to 1.12 You have decided to sell a coal mining stock (b = 1.00) at $5,000 net and use the proceeds to buy a like amount of a mineral rights company stock (b = 2.00) What is the new beta of the portfolio?
A) 1.1139
B) 1.1700
C) 1.2311
D) 1.2927
E) 1.3573

Question

Quizplus · Accepted Answer

The new beta of the portfolio is 1.1700.The old portfolio beta is 1.12. The beta of the stock that is being sold is 1.00. The beta of the stock that is being bought is 2.00. The weight of the stock that is being sold is 1/20. The weight of the stock that is being bought is 1/20. The new portfolio beta is calculated as follows:New portfolio beta = (Old portfolio beta * (1 - Weight of stock being sold)) + (Beta of stock being bought * Weight of stock being bought)New portfolio beta = (1.12 * (1 - 1/20)) + (2.00 * 1/20)New portfolio beta = 1.1700

Hold a Portfolio Consisting of a $5,000 Investment in Each