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Your portfolio has a beta of 1.60. The portfolio consists of 16 percent U.S. Treasury bills, 36 percent Stock A, and 48 percent Stock B. Stock A has a risk level equivalent to that of the overall market. What is the beta of Stock B?

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Answer: 2.58

Explanation:

Portfolio beta of 1.60 is weighted average of all the constituent betas.

US Treasury bills are riskless so beta is 0

Stock A has market risk so beta is 1.

1.60 = (0.16 * 0) + ( 0.36 * 1) + ( 0.48 * b)

1.60 = 0.36 + 0.48b

0.48b = 1.24

b = 2.58

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