Updated to match the real exam question set exactly. Each regular question is worth 4 points.
18 regular questions72 regular points total1 extra credit questionShow/hide full solutions
Extra Credit Question 1
5 extra points
Your current portfolio’s beta is about 1.3. Your total investment is worth around $300,000. Your uncle just gave you $100,000 to invest for him. You plan to invest the whole $100,000 in additional stocks to increase your whole portfolio’s beta to 1.6. What is the average beta of the new stocks to achieve your goal?
Weighted-average beta setup:
(300,000 × 1.3 + 100,000 × βnew) / 400,000 = 1.6
390,000 + 100,000βnew = 640,000
100,000βnew = 250,000
βnew = 2.50
Answer: The new stocks need an average beta of 2.50.