Question

Problem 6-01
Portfolio Beta

Your investment club has only two stocks in its portfolio. $40,000 is invested in a stock with a beta of 0.4, and $40,000 is invested in a stock with a beta of 2.2. What is the portfolio's beta? Round your answer to two decimal places.

Answer 1

Correct answer--------1.3

Working

For calculating beta of a portfolio we need two things

1. The beta of individual investments

2. Weights of investments in portfolio

Weight of Stock 1	(40000/80000)	50%
Weight of Stock 2	(40000/80000)	50%
Portfolio beta is calculated below.
Portfolio beta=	[(0.4 x 50%)+(2.2 x 50%)]	1.3