I need some help with this problem. I got 1.342 for the beta value but am unsure
ID: 3200275 • Letter: I
Question
I need some help with this problem. I got 1.342 for the beta value but am unsure if that is correct. Even if it is, can i get a step by step becasue i dont think i solved it correctly.
8. The Beta of a firm's stock indicates the degree to which changes in a firm's stock price track, or follow, changes in the stock market overall. A Beta of 1.0 indicates that, on average, a firm's stock price rises or falls the same percentage as the market overall (for example, if the market overall increases 1%, the firm's stock price increases 1 0, on average). A Beta of 2.0 indicates that, on average, a firm's stock price rises or falls at twice the percentage of the market overall (for example, if the market overall decreases 1 the firm's stock price decreases 2%, on average). Portfolios, or groups, of stocks also have Betas, which can be interpreted as the market-related volatility, or market risk, of a portfo group, of stocks. The Beta of a stock portfolio is the weighted mean of the Betas of the individual stocks, where the weights are based on the current market values of the stocks (current market value current stock price x number of shares in the portfolio). Consider the following portfolio of three Seattle-area stocks (Price and Beta values from Yahoo! Finance) Shares Company Price (4 January 2017) Beta $757.18 1,000 1.43 Amazon.com Costco $159.76 1,000 0.90 $45.06 Tableau 1,000 1.44 Calculate the Beta of the portfolio on 4 January 2017(supporting work, on a separate sheet, required for creditExplanation / Answer
Total value of risk assets=no of shares * price
=1000*757.18+1000*159.76+1000*45.06
=962000
the proportions of assets are
XA=1000*757.18/962000
=0.787
XB=1000*159.76/962000
=0.166
XC=1000*45.06/962000
=0.047
The beta of the market portfolio is M = XA* BETA A + XB*BETA + XC*BETA C
=0.787(1.43)+0.166(0.90)+0.047(1.44)
The beta of the market portfolio =1.34249
yOUR ANSWER IS CORRECT