(6–10)

Portfolio Beta You have a $2 million portfolio consisting of a $100,000 investment in each of 20 different stocks. The portfolio has a beta of 1.1. You are considering selling

$100,000 worth of one stock with a beta of 0.9 and using the proceeds to purchase another stock with a beta of 1.4. What will the portfolio’s new beta be after these transactions?

Probability rM rJ 0.3 15% 20%

0.4 9 5 0.3 18 12 Stock Investment Beta A $ 400,000 1.50 B 600,000 −0.50 C 1,000,000 1.25 D 2,000,000 0.75 Chapter 6: Risk, Return, and the Capital Asset Pricing Model 259