Your portfolio had a beta of 1.233.The portfolio included two stocks.The first stock had a beta of 0.7 and the second had a beta of 1.1.What were the portfolio weights for each stock?
A) -0.333 in stock 1; 1.333 in stock 2
B) -0.333 in stock 2; 1.333 in stock 1
C) 0.333 in stock 1; 0.667 in stock 2
D) 0.333 in stock 2; 0.667 in stock 1
E) None of the above.

Question

Quizplus · Accepted Answer

Let w be the portfolio weight of the first stock and (1 - w) the weight on the second: β_p = w₁β₁ + . . . + w_nβ_n 1.233 = w(0.7) + (1 - w)(1.1) 1.233 = 0.7w + 1.1 -1.1w 0.133 = -0.4w w = 11ea7fdb_fc08_c5ff_a768_7bfc79dc2170_TB2902_11 = -0.333 The weight of Stock 2 = (1 - (-0.333)) = 1.333

Your Portfolio Had a Beta of 1