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Edgar invested $600 in Stock F and $400 in Stock G. Stock F's beta is 1.2 and Stock G's beta is0.90. What is the beta of Edgar's portfolio?

Question

Edgar invested 600inStockFand600 in Stock F and 400 in Stock G. Stock F's beta is 1.2 and Stock G's beta is0.90. What is the beta of Edgar's portfolio?

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Solution

To calculate the beta of Edgar's portfolio, we need to take into account the proportion of the total investment that each stock represents and their respective betas.

Here are the steps:

  1. Calculate the total investment: 600(StockF)+600 (Stock F) + 400 (Stock G) = $1000.

  2. Calculate the proportion of the total investment that each stock represents:

    • Stock F: 600/600 / 1000 = 0.6
    • Stock G: 400/400 / 1000 = 0.4

  3. Multiply the beta of each stock by the proportion of the total investment that it represents:

    • Stock F: 1.2 * 0.6 = 0.72
    • Stock G: 0.90 * 0.4 = 0.36

  4. Add these values together to get the beta of the portfolio: 0.72 (Stock F) + 0.36 (Stock G) = 1.08

So, the beta of Edgar's portfolio is 1.08.

This problem has been solved

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