Your portfolio has a beta of 1.18. The portfolio consists of 25% U.S. Treasury bills,40% in stock A,and 35% in stock B. Stock A has a risk-level equivalent to that of the overall market. What is the beta of stock B?
A) 0
B) 1.42
C) 1.45
D) 1.63
E) 1.87

Question

Quizplus · Accepted Answer

We can use the following formula to find the beta of the portfolio:

Beta of portfolio = (Weight of Treasury bills * Beta of Treasury bills) + (Weight of stock A * Beta of stock A) + (Weight of stock B * Beta of stock B)

Substituting the given values, we get:

1.18 = (0.25 * 0) + (0.4 * 1) + (0.35 * Beta of stock B)

Solving for Beta of stock B, we get:

Beta of stock B = (1.18 - (0.25 * 0) - (0.4 * 1)) / 0.35

Beta of stock B = 1.42

Therefore, the answer is B) 1.42.

Your Portfolio Has a Beta of 1