Isabel invested in four-stock portfolio; she invested 20 percent of her money in Stock A, 30 percent of her money in Stock B, 25 percent of her money in Stock C, and 25 percent of her money in Stock D. The betas for Stock A, B, C, and D are 0.4, 1.2, 2.5, and 1.75, respectively, and their expected returns are 12 percent, 24 percent, 30 percent, and 28 percent, respectively. What is the beta of Isabel's portfolio?
A)1.82
B)1.96
C)1.50
D)1.43
E)1.38

Question

Quizplus · Accepted Answer

To find the beta of Isabel's portfolio, we need to use the weighted average calculation:

Beta of portfolio = (weight of Stock A x Beta of Stock A) + (weight of Stock B x Beta of Stock B) + (weight of Stock C x Beta of Stock C) + (weight of Stock D x Beta of Stock D)

Beta of portfolio = (0.20 x 0.4) + (0.30 x 1.2) + (0.25 x 2.5) + (0.25 x 1.75)
 
Beta of portfolio = 0.08 + 0.36 + 0.625 + 0.4375

Beta of portfolio = 1.4475

Therefore, the answer is 1.50 (rounded to two decimal places).

Isabel Invested in Four-Stock Portfolio; She Invested 20 Percent of Her