Your broker mailed you your year-end statement.You have $25,000 invested in Dow Chemical,$18,000 tied up in GM,$36,000 in Microsoft stock,and $11,000 in Nike.The betas for each of your stocks are 1.55 for Dow,1.12 for GM,2.39 for Microsoft,and .76 for Nike.What is the beta of your portfolio?
A)1.46
B)1.70
C)2.60
D)0.41

Question

Quizplus · Accepted Answer

To find the beta of the portfolio, we first need to calculate the weight of each stock in the portfolio. 
Weight of Dow Chemical = 25,000/(25,000+18,000+36,000+11,000) = 0.311
Weight of GM = 18,000/(25,000+18,000+36,000+11,000) = 0.224
Weight of Microsoft = 36,000/(25,000+18,000+36,000+11,000) = 0.447
Weight of Nike = 11,000/(25,000+18,000+36,000+11,000) = 0.018
Next, we can calculate the portfolio beta using the weighted average of the individual stock betas:
Portfolio Beta = (0.311*1.55) + (0.224*1.12) + (0.447*2.39) + (0.018*0.76)
Portfolio Beta = 1.70
Therefore, the best choice is B.

Your Broker Mailed You Your Year-End Statement