Problem 11-12 Calculating Portfolio Betas [LO 3] You own a portfolio equally inv
ID: 2823639 • Letter: P
Question
Problem 11-12 Calculating Portfolio Betas [LO 3]
You own a portfolio equally invested in a risk-free asset and two stocks. One of the stocks has a beta of 1.42 and the total portfolio is equally as risky as the market.
Required:
What must the beta be for the other stock in your portfolio? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)
Beta
You own a portfolio equally invested in a risk-free asset and two stocks. One of the stocks has a beta of 1.42 and the total portfolio is equally as risky as the market.
Explanation / Answer
Investment weight of each=(1/3)
Portfolio beta=Respective betas*Respective weights
1=(1.42/3)+(x/3)+(0/3)(Beta of market=1 while beta of other stock=x)
1=0.4733+(x/3)
Hence x=beta of other stock=(1-0.4733)*3
=1.58