A portfolio consists of the following stocks: Stock Beta Current Value Disney 2.
ID: 2703751 • Letter: A
Question
A portfolio consists of the following stocks:
Stock Beta Current Value
Disney 2.0 $30,000
ATK 0.7 $33,000
Coke A Cola 0.5 $28,000
Merck 1.7 $26,000
Total: $117,000
a. Find the beta of the portfolio?
b. You want to sell Merck for $26,000 and use the proceeds to buy $26,000 of Johnson stock with a beta of 1.5. After the transaction is complete, what will be the new beta of the portfolio? no commissions are considered in this.
Explanation / Answer
a. beta of the portfolio = [(2x30000)+(0.7x33000)+(0.5x28000)+(1.7x26000)]/117,000
= 141300/117000
=1.2077
b. new beta = [(2x30000)+(0.7x33000)+(0.5x28000)+(1.5x26000)]/117,000
= 136100/117000
=1.16325
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