Portfolio Beta You own $2,000 of City Steel stock that has a beta of 2.5.You also own $8,000 of Rent-N-Co (beta = 1.9)and $4,000 of Lincoln Corporation (beta = 0.25).What is the beta of your portfolio?
A)1.51
B)1.55
C)4.65
D)14.00

Question

Quizplus · Accepted Answer

To find the beta of the portfolio, we need to take a weighted average of the betas of the individual stocks, where the weights are the proportions of each stock in the portfolio.

Weight of City Steel stock = 2,000 / (2,000 + 8,000 + 4,000) = 0.2
Weight of Rent-N-Co stock = 8,000 / (2,000 + 8,000 + 4,000) = 0.8
Weight of Lincoln Corporation stock = 4,000 / (2,000 + 8,000 + 4,000) = 0.4

Beta of portfolio = (0.2 x 2.5) + (0.8 x 1.9) + (0.4 x 0.25) = 0.5 + 1.52 + 0.1 = 1.51

Therefore, the best choice is A) 1.51.

Portfolio Beta You Own $2,000 of City Steel Stock That