menu
bartleby
search
close search
Hit Return to see all results

You own a portfolio equally invested in a risk-free asset and two stocks. If one of the stocks has a beta of 1.20 and the beta of the portfolio is 1.80, what is the beta of the other?

Question

You own a portfolio equally invested in a risk-free asset and two stocks. If one of the stocks has a beta of 1.20 and the beta of the portfolio is 1.80, what is the beta of the other?

check_circleAnswer
Step 1

Introduction: Beta less than 1 state that the security price will move with the market and a beta more than 1 state that the security price will be volatile. While beta demonstrates the measure of unpredictability that can be related with its capital structure, it is incapable when looking at the instability of two distinct organizations.

Step 2

Calculation of Beta:

Assuming that the risk free asset beta as 0 and the beta of other stock as X. The beta of portfolio is equal to ...

fullscreen

Want to see the full answer?

See Solution

Check out a sample Q&A here.

Want to see this answer and more?

Our solutions are written by experts, many with advanced degrees, and available 24/7

See Solution
Tagged in

Business

Finance

Related Finance Q&A

Find answers to questions asked by student like you

Show more Q&A add
question_answer

Q: Barbie is going to borrow $5,000 to help write a book.  The loan is for one year and the money can e...

A: Option 1: 1 year loan borrowed at prime rate = 11%Effective interest cost = 11%Option 2: 1 year loan...

question_answer

Q: Use the following information: . Debt: $79,000,000 book value outstanding. The debt is trading at 94...

A: Calculation of Total Market Value:

question_answer

Q: Everest Inc. is presently enjoying relatively high growth because of a surge in the demand for its n...

A: All financials below are in $.D0 = 0.85There are three stages of growth: g1 =28% for next two years ...

question_answer

Q: Hankins Corporation has 8.9 million shares of common stock outstanding, 640,000 shares of 7.4 percen...

A: Calculating the value of after-tax cost of capital. We have,Cost of debt is calculating by the calcu...

question_answer

Q: You work for a pharmaceutical company that has developed a new drug. The patent on the drug will las...

A: Calculation of Present Value of New Drug:The present value is calculated using the present value of ...

question_answer

Q: Critique this statement: “The use of debt financing lowers the net income of the firm, and hence deb...

A: The statement has two parts:The use of debt financing lowers the net income of the firm,Hence debt f...

question_answer

Q: What are the benefits of pro forma financial statements?

A: Pro forma financial statement:Pro forma financial statements is a report which are prepared on the b...

question_answer

Q: Margoles Publishing recently completed its IPO. The stock was offered at $14.00 per share. On the fi...

A: All share prices used in the solution have been expressed in $ / share.IPO Price, P0 = 14, Closing p...

question_answer

Q: how to solve a-c?

A: Calculating the value of each amount in the flexible budget. We have,

Sorry about that. What wasn’t helpful?