You own a stock portfolio invested 20 percent in Stock Q, 20 percent in Stock R, 10 percent in Stock S, and 50 percent in Stock T. The betas for these four stocks are 0.68, 1.64, 1.25, and 1.61, respectively. What is the portfolio beta?
You own a stock portfolio invested 20 percent in Stock Q, 20 percent in Stock R, 10 percent in Stock S, and 50 percent in Stock T. The betas for these four stocks are 0.68, 1.64, 1.25, and 1.61, respectively. What is the portfolio beta?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:The image presents a series of multiple-choice options, each represented by a radio button with corresponding numerical values. The options available are:
- 1.32
- 1.42
- 1.46
- 1.39
- 1.37
There are no graphs or diagrams present in the image. Each numerical value is positioned beside a circular radio button, indicating a standard format for selecting one choice from the provided options, often used in quizzes or surveys.
![**P13-11 Calculating Portfolio Betas [LO4]**
You own a stock portfolio invested 20 percent in Stock Q, 20 percent in Stock R, 10 percent in Stock S, and 50 percent in Stock T. The betas for these four stocks are 0.68, 1.64, 1.25, and 1.61, respectively. What is the portfolio beta?
**Multiple Choice:**
- ○ 1.32
- ○ 1.42
**Explanation:**
To calculate the portfolio beta, we use the formula for weighted average beta:
\[
\text{Portfolio Beta} = (w_Q \times \beta_Q) + (w_R \times \beta_R) + (w_S \times \beta_S) + (w_T \times \beta_T)
\]
where \( w_Q, w_R, w_S, \) and \( w_T \) are the weights of the stocks in the portfolio, and \( \beta_Q, \beta_R, \beta_S, \) and \( \beta_T \) are their respective betas.
Calculating each part:
- \( w_Q = 0.20, \beta_Q = 0.68 \)
- \( w_R = 0.20, \beta_R = 1.64 \)
- \( w_S = 0.10, \beta_S = 1.25 \)
- \( w_T = 0.50, \beta_T = 1.61 \)
Substitute these values into the formula to find the Portfolio Beta.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F92e469be-c4e4-4f39-a9c4-6d6931b210d8%2Ff68f5390-c80b-4395-ba73-dec9edaa7d0d%2Fi2mqthg_processed.jpeg&w=3840&q=75)
Transcribed Image Text:**P13-11 Calculating Portfolio Betas [LO4]**
You own a stock portfolio invested 20 percent in Stock Q, 20 percent in Stock R, 10 percent in Stock S, and 50 percent in Stock T. The betas for these four stocks are 0.68, 1.64, 1.25, and 1.61, respectively. What is the portfolio beta?
**Multiple Choice:**
- ○ 1.32
- ○ 1.42
**Explanation:**
To calculate the portfolio beta, we use the formula for weighted average beta:
\[
\text{Portfolio Beta} = (w_Q \times \beta_Q) + (w_R \times \beta_R) + (w_S \times \beta_S) + (w_T \times \beta_T)
\]
where \( w_Q, w_R, w_S, \) and \( w_T \) are the weights of the stocks in the portfolio, and \( \beta_Q, \beta_R, \beta_S, \) and \( \beta_T \) are their respective betas.
Calculating each part:
- \( w_Q = 0.20, \beta_Q = 0.68 \)
- \( w_R = 0.20, \beta_R = 1.64 \)
- \( w_S = 0.10, \beta_S = 1.25 \)
- \( w_T = 0.50, \beta_T = 1.61 \)
Substitute these values into the formula to find the Portfolio Beta.
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