You currently own a portfolio valued at $80,000 that is equally as risky as the

Question

You currently own a portfolio valued at $80,000 that is equally as risky as the market. Given the information below, what is the beta of stock C?

Stock                                      Values                                         Beta

A                                                $24,600                                     1.14

B                                                 17,500                                       1.06

C                                                  32,000                                         ?

Explanation / Answer

A B AXB Stocks Values Proportion Beta Portfolio Beta A 24600 0.332 1.14 0.378 B 17500 0.236 1.06 0.250 C 32000 0.432 X 0.432X 74100 Portfolio Beta = 1
Since,given Portfolio is as risky as Market,hence, portfolio Beta = Market Bet = 1 0.378+0.250+0.432X    = 1 0.432X = 1- 0.628 X = 0.372/0.432 X = 0.861 Beta of C = 0.86

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