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 Subject: Portfolio beta calculation Category: Business and Money > Finance Asked by: kitty4400-ga List Price: \$5.00 Posted: 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.```
 ```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``` Request for Answer Clarification by kitty4400-ga on 25 Sep 2005 11:28 PDT ```I have my dumb hat on... what is the .90 and .10 in your calculation?``` Clarification of Answer by omnivorous-ga on 25 Sep 2005 12:26 PDT ```Kitty4400 -- You've replaced 1 stock of 10 or 10% of the portfolio. The other stocks are 90% of the portfolio. Of course, they're represented in decimals as 0.10 and 0.90, so we have -- Portfolio ? = 0.90 * (Other stocks ?) + .10 * (Stock 1 ?) Does that explain it? Best regards, Omnivorous-GA```
 kitty4400-ga rated this answer: and gave an additional tip of: \$1.00 `Excellent. Thanks! I had a brain cramp. It is very clear now.`