You own a stock portfolio invested 20 percent in Stock Q, 25 percent in Stock R,

Question

You own a stock portfolio invested 20 percent in Stock Q, 25 percent in Stock R, 15 percent in Stock S, and 40 percent in Stock T. The betas for these four stocks are 1.31, 1.31, 1.13, and 0.79, respectively. What is the portfolio beta?

a) 1.02

b) 1.13

c) 1.1

d) 1.05

e) 1.08

You own a stock portfolio invested 20 percent in Stock Q, 25 percent in Stock R, 15 percent in Stock S, and 40 percent in Stock T. The betas for these four stocks are 1.31, 1.31, 1.13, and 0.79, respectively. What is the portfolio beta?

Explanation / Answer

e. 1.08

Computation of Portfolio beta

Stock Beta Percentage of portfolio Beta times percentage of portfolio

Q 1.31 20 0.262

R 1.31 25 0.3275

S 1.13 15 0.1695

T 0.79 40 0.316

Portfolio beta = 0.262 + 0.3275+0.1695+0.316 = 1.08

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