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CMA Final · Strategic Financial Management · Portfolio Theory and Practice

Meera invests ₹10,00,000 as follows: ₹2,00,000 in Treasury bills (beta 0), ₹4,00,000 in Stock X (beta 1.5) and ₹4,00,000 in Stock Y (beta 0.8). What is the beta of her portfolio?

The portfolio beta is 0.92. Portfolio beta is the weighted average of component betas using value weights of 20%, 40% and 40%. Treasury bills contribute zero, and the stocks contribute 0.60 and 0.32, which add up to 0.92.

  1. A1.15
  2. B0.46
  3. C2.30
  4. D0.92Correct

Explanation

Weights are 20%, 40% and 40%. Beta = 0.2×0 + 0.4×1.5 + 0.4×0.8 = 0.60 + 0.32 = 0.92. Option 1.15 is the simple average of the two stocks' betas, ignoring the Treasury bills' weight; 2.30 is their sum.

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