You are considering a portfolio of three shares with 30% of your money invested in company X, 45% of your money invested in company Y and 25% of your money invested in company Z.If the betas for each shares are 1.22 for company X, 1.46 for company Y and 1.03 for company Z, what is the portfolio beta?
A)1.24
B)1.00
C)1.28
D)1.33

Question

Quizplus · Accepted Answer

The formula for portfolio beta is:
Portfolio Beta = (Weight of Company X * Beta of Company X) + (Weight of Company Y * Beta of Company Y) + (Weight of Company Z * Beta of Company Z)

Plugging in the given values, we get:
Portfolio Beta = (0.3*1.22) + (0.45*1.46) + (0.25*1.03) = 0.366 + 0.657 + 0.258 = 1.281

Rounding off to two decimal places, the portfolio beta is 1.28.

Therefore, the best choice is C.

You Are Considering a Portfolio of Three Shares with 30