Donald Gilmore has $100,000 invested in a 2-stock portfolio.$35,000 is invested in Stock X and the remainder is invested in Stock Y.X's beta is 1.50 and Y's beta is 0.70.What is the portfolio's beta?
A) 0.65
B) 0.72
C) 0.80
D) 0.89
E) 0.98

Question

Quizplus · Accepted Answer

The portfolio's beta is calculated as a weighted average of the betas of the individual stocks, based on the proportion of the total investment in each stock. Here, $35,000 is invested in Stock X with a beta of 1.50, and the remainder ($100,000 - $35,000 = $65,000) is invested in Stock Y with a beta of 0.70. The portfolio's beta is thus (35,000/100,000)*1.50 + (65,000/100,000)*0.70 = 0.525 + 0.455 = 0.98.

Donald Gilmore Has $100,000 Invested in a 2-Stock Portfolio