Stephen Colonnello has a theoretical investment portfolio consisting of one shar
ID: 2649001 • Letter: S
Question
Stephen Colonnello has a theoretical investment portfolio consisting of one share of Apple. Boeing, Caterpillar, and Du Pont. The current prices of Apple is $122.8, Boeing $66.7, Caterpillar $42.8, and Du Pont $54.6 The Betas are 1.8,1.1, 1.3, and 1.2, respectively. What is the theoretical portfofio Beta of his portfolio? Then he received a $62,000 Chrismas Gift from his grandmother and has a plan to invest in Apple, Boeing, Caterpillar, and Du Pont as he know these firms well. He plans to buy 100 shares of Apple, 100 shares of Du Pont, 400 shares of Boeing, and 400 shares of Caterpillar. With this plan, what would be the Beta of his portfolio? YOU MUST SHOW YOUR CALCULATIONS:Explanation / Answer
1)
Total Investment = 122.80 + 66.70 + 42.80 + 54.60 = 286.90
Weight of Apple = 122.80/286.90
Weight of Boeing = 66.70/286.90
Weight of Caterpillar = 42.80/286.90
Weight of Du pont = 54.60/286.90
Theoretical Portfolio Beta = Weight of Apple * Beta of Apple + Weight of Boeing*Beta of Boeing + Weight of Caterpillar*Beta of Caterpillar + Weight of Du pont * Beta of Du pont
Theoretical Portfolio Beta =122.80/286.90*1.8 + 66.70/286.90*1.1 + 42.80/286.90*1.3 + 54.60/286.90*1.2
Theoretical Portfolio Beta = 1.45
After recieving $ 62000
Investment in Apple = 122.80*100 = $ 12280
Investment in Boeing = 66.70*100 = 6670
Investment in Caterpillar = 42.80*400 = $ 17120
Investment in Du pont = 54.60*400 = $ 21840
Total Investment = $ 57,910
Weight of Apple = 12280/57910
Weight of Boeing = 6670/57910
Weight of Caterpillar = 17120/57910
Weight of Du pont = 21840/57910
Portfolio Beta = Weight of Apple * Beta of Apple + Weight of Boeing*Beta of Boeing + Weight of Caterpillar*Beta of Caterpillar + Weight of Du pont * Beta of Du pont
Portfolio Beta = 12280/57910*1.8 +6670/57910*1.1 + 17120/57910*1.3 +21840/57910*1.2
Portfolio Beta = 1.35
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