Your broker mailed you your year-end statement.You have $25,000 invested in BHP Billiton,$18,000 tied up in GM,$36,000 in Woolworths shares,and $11,000 in Telstra.The betas for each of your stocks are 1.55 for BHP Billiton,1.12 for GM,2.39 for Woolworths,and .76 for Telstra.What is the beta of your portfolio?
A)1.46
B)1.70
C)2.60
D)0.41

Question

Quizplus · Accepted Answer

To calculate the beta of a portfolio, you need to weight the beta of each individual stock by its percentage in the portfolio. First, calculate the total value of the portfolio:

$25,000 + $18,000 + $36,000 + $11,000 = $90,000

Next, calculate the weight of each stock in the portfolio:

BHP Billiton: $25,000/$90,000 = 0.278 
GM: $18,000/$90,000 = 0.200 
Woolworths: $36,000/$90,000 = 0.400 
Telstra: $11,000/$90,000 = 0.122

Finally, calculate the weighted average beta:

0.278 x 1.55 + 0.200 x 1.12 + 0.400 x 2.39 + 0.122 x 0.76 = 1.70

Therefore, the answer is B) 1.70.

Your Broker Mailed You Your Year-End Statement