Portfolio beta calculation
Category: Business and Money > Finance
Asked by: kitty4400-ga
List Price: $5.00
25 Sep 2005 06:49 PDT
Expires: 25 Oct 2005 06:49 PDT
Question ID: 572341
what is the new portfolio beta calculation for the following: 5,000 investment in each of 10 stocks, portfolio beta = 1.12. Sold one 5,000 stock with a beta of 1.0, used proceeds to buy another stock with beta of 1.5.
Re: Portfolio beta calculation
Answered By: omnivorous-ga on 25 Sep 2005 09:12 PDT
Kitty4400 -- As Campbell Harvey points out in the article linked, "The beta of the portfolio is the weighted average of the individual asset betas where the weights are the portfolio weights." Duke University "Asset Pricing and Risk Management," (Harvey, Nov. 27, 1995) http://www.duke.edu/~charvey/Classes/ba350/riskman/riskman.htm So, Portfolio ? = 0.90 * (Other stocks ?) + .10 * (Stock 1 ?) Or, 1.12 = 0.90 * OS? + .10 * 1.0 ==> OS? = 1.1333 Now we can figure the new portfolio ?: New portfolio ? = 0.90 * 1.1333 + 0.10 * 1.50 = 1.17 Google search strategy: ?change in portfolio? beta calculation Best regards, Omnivorous-GA
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Excellent. Thanks! I had a brain cramp. It is very clear now.
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