You currently own a portfolio valued at $52,000 that has a beta of 1.16.You have another $10,000 to invest and would like to invest it in a manner such that the portfolio beta decreases to 1.15.What does the beta of the new investment have to be?
A)1.098
B).889
C).869
D).924
E)1.125

Question

Quizplus · Accepted Answer

The correct answer is A.The beta of the new investment can be calculated using the following formula:New portfolio beta = (Current portfolio beta * Current portfolio value + New investment beta * New investment value) / (Current portfolio value + New investment value)1.15 = (1.16 * 52,000 + New investment beta * 10,000) / (52,000 + 10,000)1.15 = (60,320 + 10,000 * New investment beta) / 62,0001.15 * 62,000 = 60,320 + 10,000 * New investment beta71,300 = 60,320 + 10,000 * New investment beta10,980 = 10,000 * New investment betaNew investment beta = 1.098

You Currently Own a Portfolio Valued at $52,000 That Has