You decide to invest $20,500 in Bank of America and $14,500 in Twitter. What is the portfolioâs beta? Bank of America beta: 1.27 Twitter beta: 1.96

Portfolio Beta = 1.555857143 rounded off to 1.56

Explanation:

The portfolio beta is the function of the weighted average of the individual stock betas that form up the portfolio. The formula to calculate the beta of a portfolio containing two stock is as follows,

Portfolio Beta = wA * Beta of A  +  wB * Beta of B

Where,

As the investment in Stock of Bank of America is 20500 and the investment in stock of Twitter is 14500, the total investment in the portfolio will be,

Total investment = 20500 + 14500  =  35000

Portfolio Beta = 20500 / 35000 * 1.27  +  14500 / 35000 * 1.96

Portfolio Beta = 1.555857143 rounded off to 1.56

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