You have finally compiled your perfect portfolio. What is the beta of your perfect portfolio?

What is the beta of the perfect portfolio based on the given data?

The beta of the perfect portfolio is approximately 1.27. The correct answer is 1.27.

Calculating the Beta of the Perfect Portfolio

To calculate the beta of the perfect portfolio, you need to sum up the weighted betas of individual stocks in the portfolio. The beta of the portfolio is the weighted average of the betas of each stock, where the weights are the proportions of each stock's value in the portfolio. Step by Step Calculation: 1. Calculate the total value of the portfolio: Total Value = $4 million + $2 million + $2 million + $1 million + $3 million = $12 million 2. Calculate the weighted beta for each stock: - Weighted Beta of A = ($4 million / $12 million) * 1.8 = 0.6 - Weighted Beta of B = ($2 million / $12 million) * 1.6 = 0.27 - Weighted Beta of C = ($2 million / $12 million) * 1.4 = 0.23 - Weighted Beta of D = ($1 million / $12 million) * 0.8 = 0.07 - Weighted Beta of E = ($3 million / $12 million) * 0.4 = 0.1 3. Calculate the portfolio's beta: Portfolio Beta = Sum of Weighted Betas Portfolio Beta = 0.6 + 0.27 + 0.23 + 0.07 + 0.1 = 1.27 Therefore, the beta of the perfect portfolio is approximately 1.27.
← Why is scrambled merchandising a strategy for retailers Understanding management theories with joe →

More Posts: