The Diverse Co. has invested 40 percent of the firm's assets in a project with a beta of 0.4 and the remaining assets in a project with a beta of 1.8. What is the beta of the firm?

Question

Quizplus · Accepted Answer

Given, the weight of the first project (w1) = 0.4 and weight of the second project (w2) = 0.6 (as the remaining assets are in the second project)
The formula to calculate the portfolio beta (βp) is: 
βp = w1 * β1 + w2 *β2 
where β1 and β2 are the beta of the first project and second project respectively.

Substituting the values, 
βp = 0.4 * 0.4 + 0.6 * 1.8 = 1.28

Therefore, the beta of the firm is 1.28. 
Hence, the correct answer is option C.