Calculating Beta of Portfolio after Portfolio Change

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Calculating Beta of Portfolio after Portfolio Change

Please help me to solve this question:
You have $2 million portfolio consisting of a $100,000 investment in each of 20 different stock. The portfolio has a beta equal to 1.1. You are considering selling $100,000 worth of one stock which has a beta equal to 0.9 and using the proceeds buy another stock which has beta equal to 1.4. What will be the new beta of your portfolio following this transaction?

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		0 Ramon Consultant, Spain
	I Would Calculate the Weighted Average Beta of the Portfolio I calculate the weighted average and obtain a new beta of 1.1250.

		1 santosh Teacher, Nepal
	CAPM of Changed Portfolio Please calculate the weighted beta of remaining 19 stocks using 19/20 as their weight and 1/20 as the weight of stock to be removed. Use as equation: 19/20*b +1/20*0.9 = 1.1. Determine the value of b which is the weighted beta of 19 stocks. Then again calculate the weighted beta of 20 stocks portfolio as 19/20*b +1/20*1.4.

		0 abdollah Student (Other), Iran
	Portfolio Beta The beta of your portfolio is: (100'000/2'000'000)*b1+(1/20)b2+...+(1/20) 0.9=1.1 So 1.1=1/20*(b1+b2...+b19)+1/20*.09 B1+b2+..+b19=21.1 Now the new portfolio beta is: 1/20* 21.1+1/20*1.4=1.125.