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New Portfolio Beta After Selling

Nicole holds three stocks in her portfolio: A, B, and C. The portfolio beta is 1.40. Stock A comprises 15% of the dollar value of her holdings and has a beta of 1.0. If Nicole sells all of her investment in A and invests the proceeds in the risk-free asset, her new portfolio beta will be:
a. 0.60
b. 0.88
c. 1.00
d. 1.25

Solution Summary

The solution calculates the portfolio beta after an investment in a stock is sold out and the proceeds invested in the risk-free asset with a few lines of explanation.

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