You own $1,000 of City Steel stock that has a beta of 1.5. You also own $5,000 of Rent-N-Co (beta = 1.8) and $4,000 of Lincoln Corporation (beta = 0.9). What is the beta of your portfolio?
A) 1.4
B) 1.5
C) 4.2
D) 4.65

Question

Quizplus · Accepted Answer

The beta of the portfolio is calculated as a weighted average of the betas of the individual investments, weighted by their proportion in the portfolio. The calculation is as follows: Portfolio Beta = (1,000/10,000)*1.5 + (5,000/10,000)*1.8 + (4,000/10,000)*0.9 = 0.15 + 0.9 + 0.36 = 1.41, which rounds to 1.4.

You Own $1,000 of City Steel Stock That Has a Beta