Jim Bowles is an investor who believes the economy is gaining strength and, therefore, wishes to increase the risk of his 14 security portfolio.Each security has a current market value of $5,000 and the current beta of the portfolio is 1.02.The beta of the least risky security is .76.If Jim replaces the least risky security with another security with the same market value but a beta of 1.45, what will the portfolio beta be then?

Question

Quizplus · Accepted Answer

1.02 = (13/14)(X) + (1/14)(.76)
So X = 1.04
βp = (13/14)(1.04) + (1/14)(1.45)
= 1.069

Jim Bowles Is an Investor Who Believes the Economy Is