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12 November, 12:31

An individual has $10,000 invested in a stock with a beta of 0.3 and another $45,000 invested in a stock with a beta of 2.1. If these are the only two investments in her portfolio, what is her portfolio's beta

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  1. 12 November, 12:51
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    Th portfolio beta = 1.77

    Explanation:

    The portfolio beta is equal to the weighted average of the individual stock betas. The weight of individual stock is,

    Weight of stock in a portfolio = Investment in stock / Total investment in portfolio

    Let A be the stock with the beta 0.3.

    Let B be the stock with beta 2.1.

    Total investment in portfolio = 10000 + 45000 = 55000

    Portfolio beta = 10/55 * 0.3 + 45/55 * 2.1 = 1.7727
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