You are the money manager of a 5 stock portfolio with the following investment a

Question

You are the money manager of a 5 stock portfolio with the following investment amounts in each one: $10 million, $2 million, $5 million, $6 million and $500,000. The betas of the 5 stocks are 1.25, -1.75, 1.00, 0.75 and 1.9, respectively. The market's required return is 14% and the risk free return is 4.8%. What is the beta of this portfolio rounded to the tenth place?

You are the money manager of a 5 stock portfolio with the following investment amounts in each one: $10 million, $2 million, $5 million, $6 million and $500,000. The betas of the 5 stocks are 1.25, -1.75, 1.00, 0.75 and 1.9, respectively. The market's required return is 14% and the risk free return is 4.8%. What is the beta of this portfolio rounded to the tenth place?

Explanation / Answer

Statement showing computation of Beta of Portfolio Portfolio Investment Weight Beta Weighted Beta 1         10,000,000.00               0.4255319149            1.25      0.5319148936 2           2,000,000.00               0.0851063830          (1.75)    (0.1489361702) 3           5,000,000.00               0.2127659574            1.00      0.2127659574 4           6,000,000.00               0.2553191489            0.75      0.1914893617 5               500,000.00               0.0212765957            1.90      0.0404255319         23,500,000.00                                  1.00      0.8276595745 Beta of Portfolio is .8276595745

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