You have a portfolio consisting of 20 percent Boeing (beta = 1.3) and 40 percent Hewlett-Packard (beta = 1.6) and 40 percent McDonald's stock (beta = 0.7). How much market risk does the portfolio have?
A) This portfolio has 18 percent less risk than the general market.
B) This portfolio has 28 percent more risk than the general market.
C) This portfolio has 18 percent more risk than the general market.
D) This portfolio has 28 percent less risk than the general market.

Question

Quizplus · Accepted Answer

The portfolio's beta is calculated as the weighted average of the individual betas: (0.20 * 1.3) + (0.40 * 1.6) + (0.40 * 0.7) = 1.18. A beta of 1.18 means the portfolio has 18 percent more risk than the general market, which has a beta of 1.

You Have a Portfolio Consisting of 20 Percent Boeing (Beta