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Your portfolio has a beta of 1.39. The portfolio consists of 14 percent U.S. Treasury bills, 23 percent Stock A, and 63 percent Stock B. Stock A has a risk level equivalent to that of the overall market. What is the beta of Stock B

Respuesta :

Shahzaibfaraz

Answer:

Beta of B = 1.84

Explanation:

A beta is a measure of systematic risk. A risk free rate has zero risk thus its beta is zero. As, the T bills are risk free, so their beta is also zero. While the beta of the market is always 1. So, the beta of stock A is 1.

The portfolio beta is a function of the weighted average of the individual stocks betas that form up the portfolio. The formula for portfolio beta is,

Portfolio beta = wA * Beta A + wB * Beta B + ... + wN * Beta N

Where,

  • w represents the weight of each stock in the portfolio based on the investment in that stock

1.39 = 0.14 * 0  +  0.23 * 1  +  0.63 * Beta of B

1.39 = 0 + 0.23 + 0.63 *  Beta of B

1.39 - 0.23 = 0.63 * Beta of B

1.16 / 0.63 = Beta of B

Beta of B = 1.84

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