Rick Kish has a $100,000 stock portfolio.Thirty-two thousand dollars is invested in a stock with a beta of 0.75 and the remainder is invested in a stock with a beta of 1.38.These are the only two investments in his portfolio.What is his portfolio's beta?
A)1.18
B)1.24
C)1.30
D)1.36

Question

Quizplus · Accepted Answer

To find the portfolio beta, we need to calculate the weighted average of the individual betas of the stocks in the portfolio:

Portfolio Beta = (Beta of Stock 1 x % of investment in Stock 1) + (Beta of Stock 2 x % of investment in Stock 2)

Here, the beta of Stock 1 is 0.75 and the beta of Stock 2 is 1.38.
The % of investment in Stock 1 is given as $32,000/$100,000 = 0.32, and the % of investment in Stock 2 is 1 - 0.32 = 0.68.

Therefore, the portfolio beta is:
Portfolio Beta = (0.75 x 0.32) + (1.38 x 0.68) = 0.24 + 0.94 = 1.18

Hence, the best answer choice is A) 1.18.

Rick Kish Has a $100,000 Stock Portfolio