Jill Angel holds a $200,000 portfolio consisting of the following stocks. The portfolio's beta is 0.875. $$\begin{array} { l r r }
\underline { \text { Stock }} & \underline { \text { Investment } } & \underline { \text { Beta } } \
\text { A } & \$ 50,000 & 0.50 \
\text { B } & 50,000 & 0.80 \
\text { C } & 50,000 & 1.00 \
\text { D } & \underline { 50,000 } & 1.20 \
\text { Total } & \underline { \$ 200,000 } &
\end{array}$$ 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

Jill Angel holds a $200,000 portfolio consisting of the following stocks. The portfolio's beta is 0.875. $$\begin{array} { l r r } 
\underline { \text { Stock }} & \underline { \text { Investment } } & \underline { \text { Beta } } \
\text { A } & \$ 50,000 & 0.50 \
\text { B } & 50,000 & 0.80 \
\text { C } & 50,000 & 1.00 \
\text { D } & \underline { 50,000 } & 1.20 \
\text { Total } & \underline { \$ 200,000 } &
\end{array}$$ 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

Quizplus · Accepted Answer

To find the new portfolio beta, replace Stock A's beta with Stock E's beta and recalculate: New beta = (50,000/200,000)*1.50 + (50,000/200,000)*0.80 + (50,000/200,000)*1.00 + (50,000/200,000)*1.20 = 1.13.

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