An individual's portfolio consists of three separate assets.Asset 1 has a beta of 1.4,asset 2 has a beta of .84 and asset 3 has a beta of 1.05.The investor has invested $240 in asset 1,$500 in asset 2,and $260 in asset 3.Calculate the portfolio beta.
A) 1.03
B) 1.17
C) 1.09
D) 0.93
E) 0.85

Question

Quizplus · Accepted Answer

Step 1 - Calculate the portfolio weights. Total portfolio value = $240 + $500 + $260 = $1,000 w_i = 11ea7fdb_fc09_8957_a768_fb2d750a0803_TB2902_11 The weight of Asset 1 = 11ea7fdb_fc09_8958_a768_d1bf4a2bd8be_TB2902_11 = 0.24 The weight of Asset 2 = 11ea7fdb_fc09_8959_a768_373e20db3a4b_TB2902_11 = 0.50 The weight of Asset 3 = 11ea7fdb_fc09_895a_a768_2b2f7f638129_TB2902_11 = 0.26 Step 2 - Use the weights to compute the portfolio beta. β_p = w₁β₁ + . . . + w_nβ_n β_p = (0.24 × 1.4) + (0.50 × 0.84) + (0.26 × 1.05) β_p = 0.336 + 0.42 + 0.273 = 1.03

An Individual's Portfolio Consists of Three Separate Assets