Steve Brickson currently has an investment portfolio that contains four stocks with a total value equal to $80,000. The portfolio has a beta (β) equal to 1.4.Steve wants to invest an additional $20,000 in a stock that has β = 2.4.
After Steve adds the new stock to his portfolio, what will be the portfolio's beta?
A)1.6
B)1.9
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 can be calculated using the weighted average of the betas. The initial portfolio beta is 1.4 with a value of $80,000, and the new stock has a beta of 2.4 with a value of $20,000. The new portfolio beta is: (1.4 * 80,000 + 2.4 * 20,000) / (80,000 + 20,000) = 1.6.

Steve Brickson Currently Has an Investment Portfolio That Contains Four