Tom O'Brien has a 2-stock portfolio with a total value of $100,000. $47,500 is invested in Stock A with a beta of 0.75 and the remainder is invested in Stock B with a beta of 1.42. What is his portfolio's beta

1.10

Explanation:

The computation of portfolio's beta is shown below:-

= Stock A Beta * Invested in Stock A : Total value + Stock B Beta * (Total value - Invested in Stock A) : Invested in Stock A

= 0.75 * $47,500 : $100,000 + 1.42 * ($100,000 - $47,500) : $100,000

= 0.75 * $47,500 : $100,000 + 1.42 * $52,500 : $100,000

= 0.75 * 0.475 + 1.42 * 0.525

= 0.35625 + 0.7455

= 1.10175

or

= 1.10

Therefore for computing the portfolio beta we simply applied the above formula.