Calculating Portfolio Beta

You own a stock portfolio invested in Stock Q, R, S, and T

Your stock portfolio is invested 22 percent in Stock Q, 23 percent in Stock R, 42 percent in Stock S, and 13 percent in Stock T. The betas for these four stocks are 0.88, 0.94, 1.34, and 1.79, respectively. Now, let's calculate the portfolio beta.

What is the portfolio beta?

Answer: 1.20

Explanation:

The portfolio beta will be a weighted average of the individual stock betas.

Portfolio beta = (22% * 0.88) + (23% * 0.94) + (42% * 1.34) + (13% * 1.79)

= (0.22 * 0.88) + (0.23 * 0.94) + (0.42 * 1.34) + (0.13 * 1.79)

= 0.1936 + 0.2162 + 0.5628 + 0.2327

= 1.2053

Therefore, the portfolio beta is 1.20.

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