Calculating Beta of Portfolio after Portfolio Change




Capital Asset Pricing Model
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Charles Raphael, Malaysia

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?
 

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0
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.

 
1
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.

 
0
abdollah
Student (Other), Iran
 

Portfolio Beta

The beta of your portfolio is: (100'000/2'000'000)*b1+(1/20)b2+...+(1/20) 0.9=1.1 So 1.1=1/20*(b1+b... Sign up

   

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