Peter Lynch has the following portfolio of investments:

What is the beta of Peter's portfolio?
A) 1.000
B) 1.126
C) 1.366
D) 1.534
E) 1.877

Question

Peter Lynch has the following portfolio of investments:

What is the beta of Peter's portfolio?
A) 1.000 
B) 1.126 
C) 1.366 
D) 1.534 
E) 1.877

Quizplus · Accepted Answer

First determine the weights of each stock in the portfolio: Total Investment = $21 + $42 + $11 + $32 Total Investment = $106 million. w₁ = 11ea7fdb_fc09_3b33_a768_2f3bf2eca068_TB2902_11 = 0.20 w₂ = 11ea7fdb_fc09_3b34_a768_57e7728ab987_TB2902_11 = 0.40 w₃ = 11ea7fdb_fc09_3b35_a768_2735829316b3_TB2902_11 = 0.10 w₁ = 11ea7fdb_fc09_3b36_a768_13fd74220c08_TB2902_11 = 0.30 Next take the weighted average of the individual betas to find the portfolio beta. β_p = w₁β₁ + . . . + w_nβ_n β_p = (0.20 × 0.945) + (0.40 × 1.47) + (0.10 × 2.10) + (0.30 × 1.26) β_p = 0.19 + 0.588 + 0.21 + 0.378 = 1.366

Peter Lynch Has the Following Portfolio of Investments