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What would the diversified portfolio's new beta be if you sell one of your stocks?

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Suppose you hold a diversified portfolio consisting of $10,000 invested equally in each of 10 different common stocks. The portfolio's beta is 1.120. Now suppose you decided to sell one of your stocks that has a beta of 1.000 and to use the proceeds to buy a replacement stock with a beta of 1.750. What would the portfolio's new beta be?

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Solution Summary

The solution explains how to calculate the new beta of a portfolio after stocks are changed.

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The portfolio beta is the weighted average beta of individual stocks. The current weight ...

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