You own a stock portfolio invested 25 percent in Stock Q, 15 percent in Stock R,
ID: 2628679 • Letter: Y
Question
You own a stock portfolio invested 25 percent in Stock Q, 15 percent in Stock R, 10 percent in Stock S, and 50 percent in Stock T. The betas for these four stocks are 0.81, 1.09, 0.92, and 0.95, respectively. What is the portfolio beta? You own a stock portfolio invested 25 percent in Stock Q, 15 percent in Stock R, 10 percent in Stock S, and 50 percent in Stock T. The betas for these four stocks are 0.81, 1.09, 0.92, and 0.95, respectively. What is the portfolio beta? You own a stock portfolio invested 25 percent in Stock Q, 15 percent in Stock R, 10 percent in Stock S, and 50 percent in Stock T. The betas for these four stocks are 0.81, 1.09, 0.92, and 0.95, respectively. What is the portfolio beta?Explanation / Answer
Portfolio beta is the weighed average of betas of all stocks, hence,
Portfolio beta = w1*beta1 + w2*beta2 + w3*beta3 + w4*beta4
= 0.25*0.81 + 0.15*1.09 + 0.10*0.92 + 0.50*0.95
= 0.933