You have a diversified portfolio of $100,000 consisting of 20 stocks with $5,000 invested in each. The beta of the

Question:

You have a diversified portfolio of $100,000 consisting of 20 stocks with $5,000 invested in each. The beta of the portfolio is 1.12. You plan to sell a stock with b = 0.90 and use the proceeds to buy a new share with b = 1.80. What will be the new beta of the portfolio?

Expert Answer:

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To calculate the new beta of the portfolio we need to consider the current beta weighted contributio

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