Question

SHOW WORK PLEASE Complete problem: Portfolio Beta You have a $4 million portfolio consisting of a...

SHOW WORK PLEASE

Complete problem: Portfolio Beta You have a $4 million portfolio consisting of a $100,000 investment in each of 20 different stocks. The portfolio has a beta of 1.1. You are considering selling $100,000 worth of one stock with a beta of 0.9 and using the proceeds to purchase another stock with a beta of 1.4. What will the portfolio’s new beta be after these transactions? Show your work.

0 0
Add a comment Improve this question Transcribed image text
Answer #1

Solution :-

There is a little mistake in Question as It is $2 millions in place of $4 millions Because $100,000 investment in each of 20 different stock

Stocks in portfolio = 20

Worth of each stock in the portfolio = 100,000 dollars.

Portfolio has a beta = 1.1

This is the average of the beta of all the stocks in your portfolio.

Sell one stock that has a beta of .9 and using the proceeds to purchase another stock with a beta of 1.4.

the impact on your portfolios beta =

the $100,000 stock is worth 100,000 / 2,000,000 = .05 of your portfolio

your portfolio's beta is 1.1

you subtract .05 * .9 from it and you add .05 * 1.4 to it.

the resulting impact on the portfolio beta should be:

=  1.1 - .05*.9 + .05*1.4 =  1.125

your portfolios beta after the transaction is equal to 1.125

Add a comment
Know the answer?
Add Answer to:
SHOW WORK PLEASE Complete problem: Portfolio Beta You have a $4 million portfolio consisting of a...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions
  • You have a $5 million portfolio consisting of a $200,000 investment in each of 25 different...

    You have a $5 million portfolio consisting of a $200,000 investment in each of 25 different stocks. The portfolio has a beta of 1.5. You are considering selling $200,000 worth of one stock with a beta of 1.2 and using the proceeds to purchase another stock with a beta of 1.1. What will the portfolio’s new beta be after these transactions?

  • 42. You hold a diversified portfolio consisting of an equal investment in each of 15 different...

    42. You hold a diversified portfolio consisting of an equal investment in each of 15 different common stocks. The portfolio beta is equal to 1.61. You have decided to sell all shares of one of your stocks. The stock you are selling has a beta of 0.45. You plan to use the proceeds to purchase another stock that has a beta equal to 2.70. What will be the beta of the new portfolio?

  • Suppose you hold a portfolio consisting of a $50,000 investment in each of 8 different common...

    Suppose you hold a portfolio consisting of a $50,000 investment in each of 8 different common stocks. The portfolio’s beta is 1.25. Now suppose you decided to sell one of your stocks that has a beta of 1.00 and to use the proceeds to buy a replacement stock with a beta of 1.55. What would the portfolio’s new beta be? options: 1.17, 1.23, 1.29, 1.32, 1.43

  • You have a $1 million portfolio consisting of a $200,000 investment in each of 5 different...

    You have a $1 million portfolio consisting of a $200,000 investment in each of 5 different stocks. The portfolio has a beta of 2.0. If you add one more stock with an investment of $400,000 and a beta of 0.5. What will the portfolio's new beta be after this transaction?

  • Suppose you held a diversified portfolio consisting of a $7,500 investment in each of 20 different...

    Suppose you held a diversified portfolio consisting of a $7,500 investment in each of 20 different common stocks. The portfolio's beta is 0.75. Now suppose you decided to sell one of the stocks in your portfolio with a beta of 1.0 for $7,500 and use the proceeds to buy another stock with a beta of 1.90. What would your portfolio's new beta be?

  • Suppose you held a diversified portfolio consisting of a $7,500 investment in each of 20 different...

    Suppose you held a diversified portfolio consisting of a $7,500 investment in each of 20 different common stocks. The portfolio's beta is 1.73. Now suppose you decided to sell one of the stocks in your portfolio with a beta of 1.0 for $7,500 and use the proceeds to buy another stock with a beta of 1.93. What would your portfolio's new beta be? Do not round intermediate calculations. Round your answer to two decimal places.

  • Suppose you held a diversified portfolio consisting of a $7,500 investment in each of 20 different...

    Suppose you held a diversified portfolio consisting of a $7,500 investment in each of 20 different common stocks. The portfolio's beta is 1.05. Now suppose you decided to sell one of the stocks in your portfolio with a beta of 1.0 for $7,500 and use the proceeds to buy another stock with a beta of 0.60. What would your portfolio's new beta be? Do not round intermediate calculations. Round your answer to two decimal places.

  • Suppose you held a diversified portfolio consisting of a $7,500 investment in each of 20 different...

    Suppose you held a diversified portfolio consisting of a $7,500 investment in each of 20 different common stocks. The portfolio's beta is 2.30. Now suppose you decided to sell one of the stocks in your portfolio with a beta of 1.0 for $7,500 and use the proceeds to buy another stock with a beta of 1.88. What would your portfolio's new beta be? Do not round intermediate calculations. Round your answer to two decimal places.

  • Suppose you held a diversified portfolio consisting of a $7,500 investment in each of 20 different...

    Suppose you held a diversified portfolio consisting of a $7,500 investment in each of 20 different common stocks. The portfolio's beta is 2.05. Now suppose you decided to sell one of the stocks in your portfolio with a beta of 1.0 for $7,500 and use the proceeds to buy another stock with a beta of 1.70. What would your portfolio's new beta be? Do not round intermediate calculations. Round your answer to two decimal places.

  • Suppose you held a diversified portfolio consisting of a $7,500 investment in each of 20 different...

    Suppose you held a diversified portfolio consisting of a $7,500 investment in each of 20 different common stocks. The portfolio's beta is 1.55. Now suppose you decided to sell one of the stocks in your portfolio with a beta of 1.0 for $7,500 and use the proceeds to buy another stock with a beta of 2.20. What would your portfolio's new beta be? Do not round intermediate calculations. Round your answer to two decimal places.

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT