Jill Angel holds a $200,000 portfolio consisting of the following stocks. The portfolio's beta is 0.875. If Jill replaces Stock A with another stock, E, which has a beta of 1.50, what will the portfolio's new beta be?
A) 1.07
B) 1.13
C) 1.18
D) 1.24
E) 1.30

Question

Quizplus · Accepted Answer

The correct answer is B.The portfolio's new beta can be calculated using the following formula:New beta = (Weight of Stock A * Beta of Stock A) + (Weight of Stock E * Beta of Stock E)We know that the portfolio's current beta is 0.875, and that the weight of Stock A is 200,000 / 500,000 = 0.4. We also know that the beta of Stock E is 1.50.Therefore, the new beta can be calculated as follows:New beta = (0.4 * 0.875) + (0.6 * 1.50) = 1.13

Jill Angel Holds a $200,000 Portfolio Consisting of the Following