You hold a portfolio of stocks consisting of the following:
Stock Beta Current Value
Blackwater Gas 0.5 $10,000
Tidy Tom's Cleaners 0.7 $5,000
Globular Grabbus 1.2 $20,000
Creative Crafts 1.0 $4,000
a. What is the beta of the portfolio?
b. You have decided to sell Creative Crafts for $4,000 and to use the proceeds to buy $4,000 of International Steel stock with a beta of 2.5. After the transaction is complete, what will be the new beta of the portfolio? (Disregard any commissions on the buy and sell transactions).
The solution discusses beta of the portfolio