A Portfolio Manager (PM) has the following four stocks in his portfolio: Security No. of Shares Market Price Per Share (₹) Beta Dahlia Ltd. 10,000 50 0.9 Rose Ltd. 5,000 20 1.0 Cauliflower Ltd. 8,000 25 1.5 Apples Ltd. 2
CS Professional · Financial, Treasury and Forex Management · PYQS · December 2020
A Portfolio Manager (PM) has the following four stocks in his portfolio: Security No. of Shares Market Price Per Share (₹) Beta Dahlia Ltd. 10,000 50 0.9 Rose Ltd. 5,000 20 1.0 Cauliflower Ltd. 8,000 25 1.5 Apples Ltd. 2,000 200 1.2 Compute the following: Portfolio beta.
Answer & Explanation:
Computation of Portfolio Beta To compute the portfolio beta, we first need to calculate the total value of the portfolio and the weight of each security in the portfolio. Security No. of Shares Market Price Per Share (₹) Value of Portfolio (₹) Proportion (W) Beta (β) Portfolio Beta (W × β) Dahlia Ltd. 10,000 50 5,00,000 5,00,000 / 12,00,000 ≈ 0.4167 0.9 0.4167 × 0.9 = 0.3750 Rose Ltd. 5,000 20 1,00,000 1,00,000 / 12,00,000 ≈ 0.0833 1.0 0.0833 × 1.0 = 0.0833 Cauliflower Ltd. 8,000 25 2,00,000 2,00,000 / 12,00,000 ≈ 0.1667 1.5 0.1667 × 1.5 = 0.2501 Apples Ltd. 2,000 200 4,00,000 4,00,000 / 12,00,000 ≈ 0.3333 1.2 0.3333 × 1.2 = 0.4000 Total 12,00,000 1.0000 1.1084 The Portfolio Beta (β P ) is the sum of the weighted betas of individual securities. Portfolio Beta = 1.1084
Topics: Portfolio Management
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