Jill Angel holds a $200,000 portfolio consisting of the following stocks. The po

Question

Jill Angel holds a $200,000 portfolio consisting of the following stocks. The portfolios beta is 0.875.
Stock investment Beta A $50,000 0.50 B $50,000 0.80 C $50,000 1.00 D $50,000 1.20 Total $200,000
If Jill replaces stock A with another stock, E, which has a beta of 1.50, what will the portfolios new beta be? A. 1.07 B. 1.13 C. 1.18 D 1.24 E. 1.30 Jill Angel holds a $200,000 portfolio consisting of the following stocks. The portfolios beta is 0.875.
Stock investment Beta A $50,000 0.50 B $50,000 0.80 C $50,000 1.00 D $50,000 1.20 Total $200,000
If Jill replaces stock A with another stock, E, which has a beta of 1.50, what will the portfolios new beta be? A. 1.07 B. 1.13 C. 1.18 D 1.24 E. 1.30
Stock investment Beta A $50,000 0.50 B $50,000 0.80 C $50,000 1.00 D $50,000 1.20 Total $200,000
If Jill replaces stock A with another stock, E, which has a beta of 1.50, what will the portfolios new beta be? A. 1.07 B. 1.13 C. 1.18 D 1.24 E. 1.30

Explanation / Answer

Below is the portfolio after replacement of stock A by stock E:

Stock

Investment

Beta

Investment x Beta

E

50000

1.5

75000

B

50000

0.8

40000

C

50000

1

50000

D

50000

1.2

60000

200000

225000

Portfolio beta = sum of Investment x beta/ total investment

                                = 225,000/ 200,000

                                = 1.125

Portfolio new beta would be 1.125 or 1.13.

Stock

Investment

Beta

Investment x Beta

E

50000

1.5

75000

B

50000

0.8

40000

C

50000

1

50000

D

50000

1.2

60000

200000

225000

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