You hold a portfolio of stocks consisting of the following:
Stock Beta Current Value
Blackwater Gas 0.5 $10,000
Tidy Tom's Cleaners 0.7 $5,000
Globular Grabbus 1.2 $20,000
Creative Crafts 1.0 $4,000
Total: $39,000
a. What is the beta of the portfolio?
b. You have decided to sell Creative Crafts for $4,000 and to use the proceeds to buy $4,000 of International Steel stock with a beta of 2.5. After the transaction is complete, what will be the new beta of the portfolio? (Disregard any commissions on the buy and sell transactions.)