Your broker mailed you your year-end statement.You have $25000 invested in Telstra, $18000 tied up in Boeing, $36,000 in RedBalloon shares, and $11000 in Woolworths.The betas for each of your shares are 1.43 for Telstra, .79 for Boeing, 1.37 for RedBalloon and 1.71 for Woolworths.What is the beta of your portfolio?
A)1.33
B)1.31
C)1.00
D)5.30

Question

Quizplus · Accepted Answer

To calculate the beta of a portfolio, you need to weight the betas of each individual stock by their proportion in the portfolio. 
The total value of the portfolio is:
$25,000 + $18,000 + $36,000 + $11,000 = $90,000 
The weight of each stock in the portfolio is:
Telstra: $25,000/$90,000 = 0.2778
Boeing: $18,000/$90,000 = 0.2
RedBalloon: $36,000/$90,000 = 0.4
Woolworths: $11,000/$90,000 = 0.1222
To get the beta of the portfolio, you multiply each weight by the corresponding beta and sum the results:
0.2778 x 1.43 + 0.2 x 0.79 + 0.4 x 1.37 + 0.1222 x 1.71 = 1.31 
Therefore, the beta of the portfolio is 1.31. Option B is the correct answer.

Your Broker Mailed You Your Year-End Statement