You hold a portfolio of stocks consisting of the following:
Stock Beta Current Value
Caterpillar 1.0 $20,000
CitiCorp 0.6 $23,000
Wendy's 0.7 $18,000
Raytheon 1.1 $19,000
Total: $80,000
a. What is the beta of the portfolio?
b. You have decided to sell Raytheon for $16,000 and to use the proceeds to buy $16,000 of LuluLemon stock with a beta of 1.5. After the transaction is complete, what will be the new beta of the portfolio? (Disregard any commissions on the buy and sell transactions.)