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1 January, 16:24

Tom O'Brien has a 2-stock portfolio with a total value of $100,000. $47,500 is invested in Stock A with a beta of 0.75 and the remainder is invested in Stock B with a beta of 1.42. What is his portfolio's beta? Do not round your intermediate calculations. Round your final answer to 2 decimal places.

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  1. 1 January, 16:26
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    The portfolio beta is 1.10

    Explanation:

    The portfolio beta is the systematic riskiness of the portfolio. The portfolio beta is the weighted average of the individual stock's betas that comprises the portfolio. For a two stock portfolio, the portfolio beta can be calculated as,

    Portfolio beta = wA * βA + wB * βB

    Where,

    wAand wB represents the prportion of total investments in stocks A & B respectively and βA & βB represents the betas of the stocks.

    Portfolio beta = 47500 / 100000 * 0.75 + 52500 / 100000 * 1.42

    Portfolio beta = 1.10175 rounded off to 1.10
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