document.write( "<A HREF=/cgi-bin/jump-to-question.mpl?question=1071540>Question 1071540</A>: <I><SPAN STYLE=\"word-break: break-all;\"> You hold a diversified portfolio consisting of a $10,000 investment in each of 15 different common stocks (i.e., your total investment is $150,000). The portfolio beta is equal to 1.1 . You have decided to sell one of your stocks which has a beta equal to 2.2 for $10,000. You plan to use the proceeds to purchase another stock which has a beta equal to 1.8 . What will be the beta of the new portfolio? Show your answer to 2 decimal places </SPAN>\n" );
document.write( "</I><HR><TABLE width=100%><TR><TD><B><A HREF=http://www.algebra.com/>Algebra.Com's</A> Answer #686549 by </B><A HREF=/tutors/aboutme.mpl?userid=Theo><B>Theo(13342)</B></A><img src=\"/images/stars/stars-13.gif\" alt=\"\" >&nbsp;<A HREF=/tutors/aboutme.mpl?userid=Theo><IMG SRC=http://www.algebra.com/images/aboutme-small.gif BORDER=0 alt=\"About Me\" VALIGN=MIDDLE></A>&nbsp;<IMG SRC=http://www.algebra.com/cgi-bin/show-face.mpl?user=Theo><BR>You can <A HREF=\"/cgi-bin/embed-solution.mpl?show=1&solution=686549\">put this solution on YOUR website!</A><BR><SPAN STYLE=\"word-break: break-all;\"> you have a 10,000 investment in each of 15 different common stocks.<BR>\n" );
document.write( "your total investment is 15 * 10,000 = 150,000.<BR>\n" );
document.write( "the portfolio beta is equal to 1.1.\r<BR>\n" );
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document.write( "you sell one of yuor stocks for $10,000.<BR>\n" );
document.write( "this stock has a beta of 2.2.\r<BR>\n" );
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document.write( "you plan to use the proceeds to buy another stock for $10,000 which has a beta of 1.8.\r<BR>\n" );
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document.write( "what is the new beta of your portfolio?\r<BR>\n" );
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document.write( "the original portfolio had an average beta of 1.1.\r<BR>\n" );
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document.write( "multiply that by 15 and the total beta of the portfolio is equal to 16.5\r<BR>\n" );
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document.write( "take away a beta of 2.2 and the total portfolio beta becomes 14.3.\r<BR>\n" );
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document.write( "add a beta of 1.8 and the total portfolio beta becomes 16.1.\r<BR>\n" );
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document.write( "the average beta of the portfolio now becomes 16.1 / 15 = 1.0733333.\r<BR>\n" );
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document.write( "this is rounded to 1.07.\r<BR>\n" );
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document.write( " </SPAN>\n" );
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