ECONOMICS
RISK AND RETURN
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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0, 45
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0, 71
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1, 39
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1, 81
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Detailed explanation-1: -What is portfolio beta? A portfolio beta is nothing but the weighted sum of the individual asset betas. If your portfolio consists of two stocks and half of your money is in Stock X with a beta of 2.00 and the remaining in Stock Y with a beta of 1.00, your portfolio beta is 1.50.
Detailed explanation-2: -Beta could be calculated by first dividing the security’s standard deviation of returns by the benchmark’s standard deviation of returns. The resulting value is multiplied by the correlation of the security’s returns and the benchmark’s returns.
Detailed explanation-3: -Multiply each stock’s fractional share by its Beta. This will calculate the stock’s weighted beta: Stock ABB’s beta of 1.2 X its fractional portfolio of 0.125 = 0.15.