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Homework answers / question archive / Weight in Weight in Weight in Weight in stock G stock H stock I stock J Portfolio 1 25% 25% 25% 25% Portfolio 2 30% 40% 20% 10% Portfolio 3 10% 20% 40% 30% The beta of four stocks - G, H, I and J - are 0
Weight in Weight in Weight in Weight in
stock G stock H stock I stock J
Portfolio 1 25% 25% 25% 25%
Portfolio 2 30% 40% 20% 10%
Portfolio 3 10% 20% 40% 30%
The beta of four stocks - G, H, I and J - are 0.48, 0.86, 1.05 and 1.58 respectively.
What is the beta of a portfolio with the following weights in each asset?
Computation of the beta of portfolio 1:-
Beta of portfolio 1 = (Weight in stock G*Beta of stock G)+(Weight in stock H*Beta of stock H)+(Weight in stock I*Beta of stock I)+(Weight in stock J*Beta of stock J)
= (25%*0.48)+(25%*0.86)+(25%*1.05)+(25%*1.58)
= 0.12+0.21+0.26+0.40
= 0.99
Computation of the beta of portfolio 2:-
Beta of portfolio 2 = (Weight in stock G*Beta of stock G)+(Weight in stock H*Beta of stock H)+(Weight in stock I*Beta of stock I)+(Weight in stock J*Beta of stock J)
= (30%*0.48)+(40%*0.86)+(20%*1.05)+(10%*1.58)
= 0.14+0.34+0.21+0.16
= 0.86
Computation of the beta of portfolio 3:-
Beta of portfolio 3 = (Weight in stock G*Beta of stock G)+(Weight in stock H*Beta of stock H)+(Weight in stock I*Beta of stock I)+(Weight in stock J*Beta of stock J)
= (10%*0.48)+(20%*0.86)+(40%*1.05)+(30%*1.58)
= 0.05+0.17+0.42+0.47
= 1.11
