If a two-stock portfolio is equally invested in stocks with Betas of 1.4 and 0.7, then the portfolio Beta is: A)0.70 B)1.05 C)1.40 D)2.10 Portfolio Beta = (W₁ x B₁) + (W₂ x B₂) = ()5 x 1.4) + (.5 x .70)

Question

Quizplus · Accepted Answer

The formula for the portfolio Beta is the weighted average of the Betas of individual stocks in the portfolio. Portfolio Beta = (W₁ x B₁) + (W₂ x B₂) = (0.5 x 1.4) + (0.5 x 0.7) = 0.7 + 0.35 = 1.05 Therefore, the answer is B) 1.05 as it is the calculated portfolio Beta for the given stocks.

If a Two-Stock Portfolio Is Equally Invested in Stocks with Betas