Martin Ortner holds a $200,000 portfolio consisting of the following stocks: $$\begin{array} { c r r }
\text { Stock } & \text { Investment } & \text { Beta } \
\text { A } & \$ 50,000 & 0.95 \
\text { B } & 50,000 & 0.80 \
\text { C } & 50,000 & 1.00 \
\text { D } & 50,000 & 1.20 \
\text { Total } & \$ 200,000 &
\end{array}$$ What is the portfolio's beta?
A)0.938
B)0.988
C)1.037
D)1.089
E)1.143

Question

Martin Ortner holds a $200,000 portfolio consisting of the following stocks: $$\begin{array} { c r r } 
\text { Stock } & \text { Investment } & \text { Beta } \
 \text { A } & \$ 50,000 & 0.95 \
\text { B } & 50,000 & 0.80 \
\text { C } & 50,000 & 1.00 \
\text { D } & 50,000 & 1.20 \
\text { Total } & \$ 200,000 &
\end{array}$$ What is the portfolio's beta?
A)0.938
B)0.988
C)1.037
D)1.089
E)1.143

Quizplus · Accepted Answer

The portfolio's beta is calculated as the weighted average of the individual betas, based on the proportion of each investment in the portfolio. The calculation is as follows: $$ \text{Portfolio Beta} = \left( \frac{50,000}{200,000} \times 0.95 \right) + \left( \frac{50,000}{200,000} \times 0.80 \right) + \left( \frac{50,000}{200,000} \times 1.00 \right) + \left( \frac{50,000}{200,000} \times 1.20 \right) = 0.9875 $$ Rounded to three decimal places, the portfolio's beta is 0.988.

Martin Ortner Holds a $200,000 Portfolio Consisting of the Following