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Calculating Beta of Portfolio after Portfolio Change
Charles Raphael

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? (...) Read more? Sign up for free

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CAPM of Changed Portfolio
santosh, Teacher, Nepal, Member


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.




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