An investor has a three stock portfolio: $25,000 in McDonald's, which has a beta of 0.41; $25,000 in Home Depot, which has a beta of 0.81; and $50,000 in Cardinal Health, which has a beta of 0.76. The beta of this investor's portfolio is closest to:
A) 0.660
B) 0.685
C) 1.000
D) 1.980

Question

Quizplus · Accepted Answer

The beta of the portfolio is calculated by taking the weighted average of the betas of the individual stocks, with the weights being the proportion of the investment in each stock. The total investment is $100,000 ($25,000 in McDonald's + $25,000 in Home Depot + $50,000 in Cardinal Health). The calculation is as follows:- McDonald's: (25,000 / 100,000) * 0.41 = 0.1025- Home Depot: (25,000 / 100,000) * 0.81 = 0.2025- Cardinal Health: (50,000 / 100,000) * 0.76 = 0.38Adding these together gives 0.1025 + 0.2025 + 0.38 = 0.685.

An Investor Has a Three Stock Portfolio: $25,000 in McDonald's