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Suppose there are 5 stocks with the following betas:βA= 0.5, βB= 1.2, βC= 0.6, βD= 1, βE= 0.8A portfolio manager decides to invest £100,000 in a portfolio comprising these 5 stocks as follows:A = £20,000, B = £10,000, C = £25,000, D = £15,000, E = £30,000What is the beta of the portfolio?

Question

Suppose there are 5 stocks with the following betas:βA= 0.5, βB= 1.2, βC= 0.6, βD= 1, βE= 0.8A portfolio manager decides to invest £100,000 in a portfolio comprising these 5 stocks as follows:A = £20,000, B = £10,000, C = £25,000, D = £15,000, E = £30,000What is the beta of the portfolio?

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Solution

To calculate the beta of the portfolio, we need to take into account the proportion of the total investment that each stock represents and its respective beta.

Here are the steps:

  1. Calculate the proportion of the total investment for each stock:

    • A: £20,000 / £100,000 = 0.2
    • B: £10,000 / £100,000 = 0.1
    • C: £25,000 / £100,000 = 0.25
    • D: £15,000 / £100,000 = 0.15
    • E: £30,000 / £100,000 = 0.3

  2. Multiply the proportion of each stock by its respective beta:

    • A: 0.2 * 0.5 = 0.1
    • B: 0.1 * 1.2 = 0.12
    • C: 0.25 * 0.6 = 0.15
    • D: 0.15 * 1 = 0.15
    • E: 0.3 * 0.8 = 0.24

  3. Add up these values to get the beta of the portfolio:

    • 0.1 + 0.12 + 0.15 + 0.15 + 0.24 = 0.76

So, the beta of the portfolio is 0.76.

This problem has been solved

Similar Questions

Suppose you have 5 stocks with the following betas:​βA = 0.6, βB = 1.4, βC = 1.6, βD = 1.3, βE = 0.4​What is the beta of an equally weighted portfolio containing the stocks A, B, C and E?

PORTFOLIO BETA An individual has $20,000 invested in a stock with a beta of 0.6 and another $75,000 invested in a stock with a beta of 2.5. If these are the only two investments in her portfolio, what is her portfolio’s beta?

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Given: risk-free rate of return = 5 % market return = 10%, cost of equity = 15% value of beta (β) is:a.1.9b.1.8c.2.0d.2.2

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