Shirley Paul's 2-stock portfolio has a total value of $100,000.$37,500 is invested in Stock A with a beta of 0.75 and the remainder is invested in Stock B with a beta of 1.42.What is her portfolio's beta?
A) 1.17
B) 1.23
C) 1.29
D) 1.35
E) 1.42

Question

Quizplus · Accepted Answer

The portfolio's beta is calculated by taking the weighted average of the betas of the individual stocks. The weight of Stock A is $37,500 / $100,000 = 0.375, and the weight of Stock B is $62,500 / $100,000 = 0.625. Thus, the portfolio's beta = (0.375 * 0.75) + (0.625 * 1.42) = 0.28125 + 0.8875 = 1.16875, which rounds to 1.17.

Shirley Paul's 2-Stock Portfolio Has a Total Value of $100,000