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2. You want to form a portfolio of stock A and stock B. Stock A has a beta of .85 and stock B has a beta of 1.6. If you invest $6,000 in stock A and $4,000 in stock B, what is the portfolio beta

Respuesta :

letmeanswer

Answer:

Given: Investment in Stock A = $6000 and in Stock B = $4000

Particulars                            weights           beta

Stock A                                60 percent        0.85

Stock B                            40 percent              1.6

The following is the calculation of the portfolio beta

Portfolio Beta = (0.6 multiply with 0.85) + (0.4 multiply with 1.6)

Solving the equation:

= 0.51 + 0.64

Thus, after solving we get, 1.15

Thus, the portfolio beta = 1.15

Parrain

Based on the portfolio beta being a weighted average of individual betas, the portfolio beta here is 1.15.

As mentioned, the portfolio beta is a weighted average of the betas of the individual stocks.

It is therefore calculated as:

= (Weight of stock A x Beta of stock A) + (Weight of stock B x Beta of stock B)

Solving gives:

= ( 6,000 / (6,000 + 4,000) x 0.85) + (4,000 / (6,000 + 4,000) x 1.6)

= 0.51 + 0.64

= 1.15

In conclusion, the portfolio beta is 1.15.

Find out more at https://brainly.com/question/20165286.

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