Calculating Beta of Portfolio after Portfolio Change

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Charles Raphael

Calculating Beta of Portfolio after Portfolio Change

Please help me to solve this question:
You have $2 million portfolio consisting of a $100,000 investment in each of 20 different stock. The portfolio has a beta equal to 1.1. You are considering selling $100,000 worth of one stock which has a beta equal to 0.9 and using the proceeds buy another stock which has beta equal to 1.4. What will be the new beta of your portfolio following this transaction?

  Ramon
Consultant, Spain
 

I Would Calculate the Weighted Average Beta of the Portfolio

I calculate the weighted average and obtain a new beta of 1.1250.

  santosh
Teacher, Nepal
 

CAPM of Changed Portfolio

Please calculate the weighted beta of remaining 19 stocks using 19/20 as their weight and 1/20 as the weight of stock to be removed.
Use as equation: 19/20*b +1/20*0.9 = 1.1. Determine the value of b which is the weighted beta of 19 stocks.
Then again calculate the weighted beta of 20 stocks portfolio as 19/20*b +1/20*1.4.

  abdollah
Student (Other), Iran
 

Portfolio Beta

The beta of your portfolio is: (100'000/2'000'000) (...)

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