Problem 2-10 Portfolio Beta You have a $2 million portfolio consisting of a $100

Question

Problem 2-10
Portfolio Beta

You have a $2 million portfolio consisting of a $100,000 investment in each of 20 different stocks. The portfolio has a beta of 0.75. You are considering selling $100,000 worth of one stock with a beta of 0.85 and using the proceeds to purchase another stock with a beta of 1.45. What will the portfolio's new beta be after these transactions? Do not round intermediate calculations. Round your answer to two decimal places.

Problem 2-10
Portfolio Beta

You have a $2 million portfolio consisting of a $100,000 investment in each of 20 different stocks. The portfolio has a beta of 0.75. You are considering selling $100,000 worth of one stock with a beta of 0.85 and using the proceeds to purchase another stock with a beta of 1.45. What will the portfolio's new beta be after these transactions? Do not round intermediate calculations. Round your answer to two decimal places.

Explanation / Answer

Hi,

Please find the detailed answer as follows:

Portfolio Beta = .85

Weight of Each Stock in the Portfolio = 100000/2000000 =.05

Portfolio Beta After Sale and Purchase = .85 - .05*1.05 + .05*1.45 = .87

Answer is .87

Thanks.

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