what is the beta of a threestock portfolio including 2500 in

what is the beta of a three-stock portfolio including $2500 invested in stock A with a beta of .90, $4000 invested in stock B with a beta of 1.05, and $3500 invested in stock C with beta of 1.73?

Solution

Beta of three stock portfolio 1.25 Working: Beta of portfolio is calculated as follows: Stock Weight Beta a b a*b Stock A              0.25 0.90           0.23 Stock B              0.40 1.05           0.42 Stock C              0.35 1.73           0.61 Total           1.25 Thus, Beta of three stock portfolio is           1.25 Working: Weight of individual asset is calculated as follows; Stock Investment / Total Investment = Weight Stock A $       2,500 $       10,000 =           0.25 Stock B           4,000           10,000 =           0.40 Stock C           3,500           10,000 =           0.35 Total         10,000           1.00