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You decide to invest $20,500 in Bank of America and $14,500 in Twitter. What is the portfolioâs beta? Bank of America beta: 1.27 Twitter beta: 1.96

Respuesta :

Shahzaibfaraz

Answer:

Portfolio Beta = 1.555857143 rounded off to 1.56

Explanation:

The portfolio beta is the function of the weighted average of the individual stock betas that form up the portfolio. The formula to calculate the beta of a portfolio containing two stock is as follows,

Portfolio Beta = wA * Beta of A  +  wB * Beta of B

Where,

  • w is the weight of each stock

As the investment in Stock of Bank of America is 20500 and the investment in stock of Twitter is 14500, the total investment in the portfolio will be,

Total investment = 20500 + 14500  =  35000

Portfolio Beta = 20500 / 35000 * 1.27  +  14500 / 35000 * 1.96

Portfolio Beta = 1.555857143 rounded off to 1.56

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