Question

2. Assume that there are 3 firms in an industry for which you wish to compute an industry beta. The betas of these 3 firms are 1.1, 1.2, and 1.4. a. What is the beta of an equal-weighted portfolio of the 3 firms? b. If the market capitalizations of the 3 firms are $100 million (beta 1.1), $200 million (beta1.2), $300 million (beta 1.4), what is the beta of a market capitalization, value-weighted industry portfolio?

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