Sherrie Hymes holds a $200,000 portfolio consisting of the following stocks. The portfolio's beta is 0.875.
Stock
Investment
Beta
A
$50,000
0.50
B
50,000
0.80
C
50,000
1.00
D
50,000
1.20
Total
$200,000
If Sherrie replaces Stock A with another stock, E, which has a beta of 1.50, what will the portfolio's new beta be?
A. 1.07
B. 1.13
C. 1.18
D. 1.24
E. 1.30
Answer: B
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