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QUESTION
Suppose you hold a diversified portfolio consisting of $7,500 invested equally in each of 20 different common stocks. The portfolio's beta is 1.
Suppose you hold a diversified portfolio consisting of $7,500 invested equally in each of 20 different common stocks. The portfolio’s beta is 1.120. Now suppose you decided to sell one of your stocks that has a beta of 1.000 and to use the proceeds to buy a replacement stock with a beta of 1.750. What would the portfolio’s new beta be?
