Purchase Solution

Working with Portfolio Betas

Not what you're looking for?

Ask Custom Question

Suppose you hold a diversified portfolio consisting of a $7,500 investment in each of 20 different common stocks. The portfolio beta is equal to 1.12. Now, suppose you have decided to sell one of the stocks in your portfolio with a beta equal to 1.0 for $7,500 and to use these proceeds to buy another stock for your portfolio. Assume the new stock's beta is equal to 1.75 Calculate your portfolio's new beta.

Purchase this Solution
Solution Summary

The solution explains how to calculate the new beta of a portfolio given a change in composition of the portfolio.

Solution Preview

The portfolio beta is the weighted average of individual beta, with the investment proportion as the weight. There are 20 stocks and each is worth $7,500. The total portfolio value is ...

Purchase this Solution
Free BrainMass Quizzes
Social Media: Pinterest

This quiz introduces basic concepts of Pinterest social media

Change and Resistance within Organizations

This quiz intended to help students understand change and resistance in organizations

Understanding Management

This quiz will help you understand the dimensions of employee diversity as well as how to manage a culturally diverse workforce.

Writing Business Plans

This quiz will test your understanding of how to write good business plans, the usual components of a good plan, purposes, terms, and writing style tips.

Business Processes

This quiz is intended to help business students better understand business processes, including those related to manufacturing and marketing. The questions focus on terms used to describe business processes and marketing activities.

View More Free Quizzes
Related BrainMass Solutions

  • Finance Question: Beta and Risk

    Hence, for a portfolio, beta is equal to weighted average of betas for the individual assets. For example a portfolio consists of three stocks with betas 0.8, 0.6, and 0.4.

  • Portfolio risk and return

    162079 Portfolio risk and return. 1. Suppose a portfolio had been formed with 40% portfolio value in stock DO and 60% in stock GDT.

  • Security expected returns and betas in 3 well-diversified portfolios

    This gives the Portfolio a beta of 1.10 which is now equal to Security 3 The security expected returns and betas 3 well-diversified portfolio is determined.

  • Portfolio return, Stock return, Leverage

    D Required returns have increased for stocks with betas greater than 1.0 but have declined for stocks with betas less than 1.0. E The required returns on all stocks have fallen by the same amount.

  • What are the betas of the two securities?

    Calculate the betas of the two securities. e. Why should the expected return for a security be directly related to the security's covariance with the market portfolio? Please see the attached file. Assess the market portfolio and the risk free rate.

  • There are few, if any, real companies with negative betas.

    496591 Real Companies with Negative Betas There are few, if any, real companies with negative betas. But suppose you found one with B=-,25. A. How would you expect this stock's rate of return to change if the overall market rose by an extra 5%?

  • Expected Return and Stock Portfolios

    (2) A stock portfolio is equally allocated among Stock A, B, and C. Stocks A, B, and C have betas of 1.9, 1, and 0.57, respectively. The market has just risen 4%. What would you expect to happen to this stock portfolio? A.

  • Why should a stock beta and expected return be related?

    Why is the standard deviation of a portfolio typically less that the average of the betas of the stocks in the portfolio?

  • portfolio (weighted average) expected rate of return

    256401 portfolio (weighted average) expected rate of return You are considering investing in a portfolio of the common stocks of four publicly-traded companies with betas as follows: ABC: 0.7 DEF: 0.9 GHI: 1.3 JKL: 1.9 If the risk-free

View More Related Solutions