You own a stock portfolio invested 30 percent in Stock Q, 25 percent in Stock R, 25 percent in Stock S, and 20 percent in Stock T. The betas for these four stocks are .95, 1.12, 1.13, and 1.30, respectively. What is the portfolio beta?

Problem 13-11 Calculating Portfolio Betas [LO4]

You own a stock portfolio invested 30 percent in Stock Q, 25 percent in Stock R, 25 percent in Stock S, and 20 percent in Stock T. The betas for these four stocks are .95, 1.12, 1.13, and 1.30, respectively. What is the portfolio beta? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Answer

The beta of a portfolio is the sum of the weight of each asset times the beta of each asset. So, the beta of the portfolio is:

  

βP = .30(.95) + .25(1.12) + .25(1.13) + .20(1.30)

βP = 1.11