Calculating Beta of Portfolio after Portfolio Change

Capital Asset Pricing Model
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Capital Asset Pricing Model > Best Practices

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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  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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