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You are managing a portfolio of 10 stocks which are held in equal dollar amounts. The current beta of the portfolio is 1.55, and Enter question
the beta of stock a is 2.0. If stock A is sold and the proceeds are used to purchase a replacement stock, what does the beta of
the replacement stick have to be to change the portfolio beta to 1.7?
A. 4.4
B. 5.3
C. 3.2 Continue to post
D. 3.5
13 questions remaining
E. 4.1

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Answer is : D . 3 . 5

1.55 = 0.9(bR) + 0.1(bA) Vector... Vector... Money...

10th Edition 9th Edition 5th Edition

1.55 = 0.9(bR) + 0.1(2.0)
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1.55 = 0.9(bR) + 0.2

1.35 = 0.9(bR)

bR = 1.50

Now find the beta of the new stock that produces bp = 1.5

1.70 = 0.9(1.50) + 0.1(bN)

1.70 = 1.35 + 0.1(bN)

0.35 = 0.1(bN)

bN = 3.5
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