A portfolio contains two securities and has a beta of 1.08.The first security comprises 54 percent of the portfolio and has a beta of 1.27.What is the beta of the second security?
A).79
B).86
C).62
D).82
E).93

Question

Quizplus · Accepted Answer

We can use the formula for the beta of a portfolio:

Beta_portfolio = weight_security1 * Beta_security1 + weight_security2 * Beta_security2

Plugging in the given values, we get:

1.08 = 0.54 * 1.27 + weight_security2 * Beta_security2

Solving for Beta_security2, we get:

Beta_security2 = (1.08 - 0.54 * 1.27) / weight_security2

Beta_security2 = 0.86

Therefore, the answer is B) 0.86.

A Portfolio Contains Two Securities and Has a Beta of 1.08.The