Ask Question
21 November, 17:20

You hold a diversified portfolio consisting of many different common stocks with a total market value of $100,000. The portfolio beta is equal to 1.15. You have decided to sell one of your stocks, a lead mining stock whose beta is equal to 0.7, for $10,000 net and to use the proceeds to buy $10,000 of stock in a steel company whose beta is equal to 2.3. What will be the new beta of the portfolio? (Round to two digit decimal places, e. g., 1.15)

+4
Answers (1)
  1. 21 November, 19:40
    0
    The new beta of the portfolio is 1.31

    Explanation:

    The computation of the new beta portfolio is equal to

    = Portfolio beta - (selling Beta * net value : total market value) + (purchase beta * net value : total market value)

    = 1.15 - (0.7 * $10,000 : $100,000) + (2.3 * $10,000 : $100,000)

    = 1.15 - 0.07 + 0.23

    = 1.31

    For computing the accurate value we add the purchase beta and deduct the selling beta from the portfolio beta.
Know the Answer?
Not Sure About the Answer?
Find an answer to your question ✅ “You hold a diversified portfolio consisting of many different common stocks with a total market value of $100,000. The portfolio beta is ...” in 📘 Business if you're in doubt about the correctness of the answers or there's no answer, then try to use the smart search and find answers to the similar questions.
Search for Other Answers