New beta portfolio
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You hold a diversified $100,000 portfolio consisting of 20 stocks with $5,000 invested in each. The portfolio's beta is 1.12. You plan to sell a stock with b = 0.90 and use the proceeds to buy a new stock with b = 2.50. What will the portfolio's new beta be?
a) 1.200
b) 1.152
c) 1.308
d) 0.912
e) 1.008
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Solution Summary
The solution explains how to calculate the new beta of the portfolio.
Solution Preview
The portfolio beta is the weighted average of individual stock beta. If we sell a stock, the portfolio ...
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