An individual has $20,000 invested in a stock with a beta of 0.6 and another $55,000 invested in a stock with a beta of 2.5. If these are the only two investments in her portfolio, what is her portfolio's beta? Do not round intermediate calculations. Round your answer to two decimal places.

1.99

Explanation:

The computation of portfolio's beta is shown below:-

Total Portfolio value = Value of Stock 1 + Value of Stock 2

= $20,000 + $55,000

= $75,000

Weight of Stock 1 = Value of Stock 1 ÷ Total Portfolio Value

= $20,000 ÷ $75,000

= 0.2667

Weight of Stock 2 = Value of Stock 2 ÷ Total Portfolio Value

= $55,000 ÷ $75,000

= 0.7333

Beta of Portfolio = Weight of Stock 1 × Beta of Stock 1 + Weight of Stock 2 × Beta of Stock 2

= 0.6 × 0.2667 + 2.5 × 0.7333

= 1.99

So, for computing the portfolio's beta we simply applied the above formula.

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