A portfolio comprises Cochlear (beta of 1.5)and Westpac (beta of 0.75). The amount invested in Cochlear is $25 000 and in Westpac is $35 000. What is the beta of the portfolio?

Question

Quizplus · Accepted Answer

To calculate the beta of the portfolio, the following formula is used:

Beta of portfolio = (amount invested in Cochlear / total amount invested) x beta of Cochlear + (amount invested in Westpac / total amount invested) x beta of Westpac

total amount invested = $25,000 + $35,000 = $60,000

Beta of portfolio = (25000/60000) x 1.5 + (35000/60000) x 0.75

Beta of portfolio = 0.625 + 0.4375

Beta of portfolio = 1.0625

Therefore, the beta of the portfolio is 1.06, which is closest to 0.96 (option B).

A Portfolio Comprises Cochlear (Beta of 1