Sharon Stonewall currently has an investment portfolio that contains 10 stocks that have a total value equal to $160,000.The portfolio has a beta (β) equal to 1.0.Sharon wants to invest an additional $40,000 in a stock with β =
2)0.After Sharon adds the new stock to her portfolio, what will be the portfolio's beta?
A)1.2
B)1.5
C)2.0
D)Not enough information is given to compute the portfolio's beta (β).
E)None of the above is correct.

Question

Quizplus · Accepted Answer

The new portfolio beta is calculated by taking the weighted average of the existing portfolio beta and the new stock beta. The existing portfolio is $160,000 with a beta of 1.0, and the new investment is $40,000 with a beta of 2.0. The new portfolio beta is (160,000/200,000)*1.0 + (40,000/200,000)*2.0 = 1.2.

Sharon Stonewall Currently Has an Investment Portfolio That Contains 10