Business, 14.07.2020 18:01 nataliem02

Paul McLaren holds the following portfolio: Stock Investment Beta A $150,000 1.40 B 50,000 0.80 C 100,000 1.00 D 75,000 1.20 Total $375,000 Paul plans to sell Stock A and replace it with Stock E, which has a beta of 0.75. By how much will the portfolio beta change? a. −0.190 b. −0.211 c. −0.234 d. −0.286

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Answer from: FortniteB

The change in portfolio beta is -0.26.

Beta is used to measure systemic risk. The higher the value of beta, the higher systemic risk is. A portfolio's beta can be determined by adding together the weighted beta of each stock in the portfolio

Weighed beta of a stock = percentage of the stock in the portfolio x beta of the stock

Beta of the initial portfolio

[(150,000 / 375000) x 1.4] + [(50,000 / 375000) x 0.8] + [(100,000/ 375,000) x 1] + [(75,000 / 375,000) x 1.2]

= 0.56 + 0.1067 + 0.2667 + 0.24 = 1.1734

Beta of the new portfolio

[(150,000 / 375000) x 0.75] + [(50,000 / 375000) x 0.8] + [(100,000/ 375,000) x 1] + [(75,000 / 375,000) x 1.2]

0.3 + 0.1067 + 0.2667 + 0.24 = 0.9134

Change in portfolio beta = -0.26

To learn more about beta, please check: link

Answer from: lhotsedog96

- 0.260

Explanation:

The computation of portfolio beta is shown below:-

Stocks Value Weight (a) Beta (b) Portfolio Beta (a × b)

Stock A $150,000 0.4000 1.4 0.560

Stock B $50,000 0.1333 0.8 0.107

Stock C $100,000 0.2667 1 0.267

Stock D $75,000 0.2000 1.2 0.240

Total $375,000 1.173

Now the revise of beta with stock E is

Stocks Value Weight (a) Beta (b) Portfolio Beta (a × b)

Stock E $150,000 0.4000 0.75 0.300

Stock B $50,000 0.1333 0.8 0.107

Stock C $100,000 0.2667 1 0.267

Stock D $75,000 0.2000 1.2 0.240

Total $375,000 0.913

Now

Net Change in Beta of Portfolio is

= Beta of portfolio with Stock E - Beta of Portfolio with Stock A

= 0.913 - 1.173

= - 0.260

This is the answer but the same is not provided in the given options

Answer from: Quest

answer; i do believe that the correct answer is (d) referrals from

Answer from: Quest

answer; i believe the correct answer is (tall); ///good luck

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Paul McLaren holds the following portfolio: Stock Investment Beta A $150,000 1.40 B 50,000 0.80 C 10...

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