What Should Be the Beta of a Replacement Stock If

question 86

Multiple Choice

What should be the beta of a replacement stock if an investor wishes to achieve a portfolio beta of 1.2 by replacing stock C in the following equally weighted portfolio: stock A = 0.9 beta; stock B = 1.1 beta; stock C = 1.35 beta?

• A) 0.7
• B) 1.6
• C) 1.2
• D)1.8

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