All about Capital Asset Pricing Model
Learn from colleagues and experts
Join now. Completely free.
Log in
X
Why register?
Welcome to the world's #1 website about management.
 Discover 1000s of knowledge centers.
 Learn from colleagues and experts.
 Share best practices with 1,000,000 members.
 Accelerate your management career.
 Completely free.
Log in

Calculating Beta of Portfolio after Portfolio Change
Charles Raphael, Student (Part Time), Malaysia
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?




CAPM of Changed Portfoliosantosh, Teacher, Nepal 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. 



Portfolio Betaabdollah, Student (Other), Iran 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+b2...+b19)+1/20*.09
B1+b2+..+b19=21.1
Now the new portfolio beta is: 1/20* 21.1+1/20*1.4=1.125. 


Do you wish to study further? You can learn more from the summary, forum, discussions, lessons, courses, training, instructions, expert tips, best practices and education sources. Register.





Special Interest Group Leader



More on Capital Asset Pricing Model






