You hold a diversified portfolio consisting of many different common stocks with a total market value of $100,000. the portfolio beta is equal to 1.15. you have decided to sell one of your stocks, a lead mining stock whose beta is equal to 0.7 , for $10,000 net and to use the proceeds to buy $10,000 of stock in a steel company whose beta is equal to 2.3 . what will be the new beta of the portfolio? (round to two digit decimal places, e. g., 1.15)

The new beta of the portfolio is 1.31

Explanation:

The computation of the new beta portfolio is equal to

= Portfolio beta - (selling Beta × net value ÷ total market value) + (purchase beta × net value ÷ total market value)

= 1.15 - (0.7 × $10,000 ÷ $100,000) + (2.3 × $10,000 ÷ $100,000)

= 1.15 - 0.07 + 0.23

= 1.31

For computing the accurate value we add the purchase beta and deduct the selling beta from the portfolio beta.

a manufacturer of printed circuit boards uses exponential smoothing with trend to forecast monthly demand of its product. at the end of december, the company wishes to forecast sales for january. the estimate of trend through november has been 200 additional boards sold per month. average sales have been around 1000 units per month. the demand for december was 1100 units. the company uses α = 0.20 and β = 0.10. make a forecast including trend for the month of january.