Keith Johnson has $100,000 invested in a two-stock portfolio.Thirty thousand dollars is invested in Potts Manufacturing and the remainder is invested in Stohs Corporation.Potts' beta is 1.60 and Stohs' beta is 0.60.What is the portfolio's beta?
A)0.66
B)0.74
C)0.82
D)0.90

Question

Quizplus · Accepted Answer

The portfolio's beta is calculated by taking the weighted average of the betas of the individual stocks. For Potts Manufacturing, with $30,000 invested and a beta of 1.60, and Stohs Corporation, with $70,000 invested (since the total investment is $100,000) and a beta of 0.60, the calculation is as follows: Portfolio Beta = (30,000/100,000) * 1.60 + (70,000/100,000) * 0.60 = 0.48 + 0.42 = 0.90.

Keith Johnson Has $100,000 Invested in a Two-Stock Portfolio