cab advanced financial management unit : i - v · regulation of sebi regarding capital issues and...
TRANSCRIPT
UNIT I - SYLLABUS
Definition, scope and functions of Financial Management-
Objectives of firm
An outline of Financial System in India
Regulation of SEBI regarding Capital issues and stock
exchanges.
CAB – Advanced Financial Management 2
TM
CAB – Advanced Financial Management
ENVIRONMENT OF CORPORATE FINANCE
Corporate finance consists of the financial activities related to
running a corporation, usually with a division or department set
up to oversee the financial activities. Corporate finance is
primarily concerned with maximizing shareholder value through
long-term and short-term financial planning and the
implementation of various strategies. Everything from capital
investment decisions to investment banking falls under the
domain of corporate finance.
https://www.youtube.com/watch?v=Tdu0QPfoYZQ
3
What is Advanced
Financial Management?
Concerns the acquisition, financing, and
management of assets with some overall goal
in mind.
CAB – Advanced Financial Management
Definitions
Finance management
J.F. Bradlery :-“financial business finance
can be broadly defined as the activity
concerned with the planning, raising,
controlling and administering the funds used
in the business”.
4
“Advanced Financial Management is concerned with the
efficient use of an important economic resource, namely
capital funds”. – Solomon
“Advanced Financial Management is the application of the
planning and control function to the finance function”.- Archer
and Ambrosio
Meaning of Advanced Financial Management
Advanced Financial Management is application of principles of
management to the subject called finance , it involves planning,
controlling decision making with respect to finance activity of the
business .
Video link: https://www.youtube.com/watch?v=jr_Njrgajb0
Definition of Advanced
Financial Management
CAB – Advanced Financial Management 5
Objectives of Advanced
Financial Management
Video link: https://www.youtube.com/watch?v=75dPbNemehk
CAB – Advanced Financial Management 6
Scope of Advanced Financial
Management
(i) Traditional Approach:
a) The traditional approach to scope of Advanced Financial Management refers to its subject matter in the academic literature in the initial stage of its evolution as a separate branch of study confined to raising of funds.
b) The subject was called Corporate finance till the mid 1950‟s and covered discussion on financial instruments, institutions and practices through which funds are obtained.
c) The problem of raising funds is more intensely felt at certain episodic events such as merger, liquidation, consolidation, reorganisation and so on.
CAB – Advanced Financial Management 7
(ii) Modern approach
• The approach and utility of Advanced Financial Managementhas started changing in a revolutionary manner, after 1950.
• The emphasis was shifted from raising of funds to effective andjudicious utilisation of funds.
• Financial decisions have a great impact on all other businessactivities, the finance manager should be concerned aboutdetermining the size and nature of technology, setting thedirection and growth of the business, shaping the profitability,capital structure etc.
• The modern approach is thus an analytical way of viewing the
financial problems of a firm.
• The modern financial manager has to take financial decisions in
the most rational way. These decisions are to be made in such a
way that the funds of the firm are used optimally.
CAB – Advanced Financial Management 8
Nature of Advanced
Financial Management
• FM is an area of decision making in finance function of the business.
• It is descriptive/ theoretical/ statistical/ historical and analytical in nature.
• It involves application of management principles to the finance function.
• It is applicable to every organization irrespective of its size, nature, place.
• It deals with accumulation and utilization of financial resources (business resources).
• It is directed towards achieving business objectives.
CAB – Advanced Financial Management 9
Scope of Advanced
Financial Management.
1.Estimating financial requirements
2.Deciding capital structure
3.Selecting source of finance
4.Selecting pattern of investment
5.Cash management
6.Profit management
7.Ensuring liquidity
8. Meeting statuary requirement.
CAB – Advanced Financial Management 10
CAB – Advanced Financial Management
Indian Financial System
https://www.slideshare.net/divyaactive/indian-financial-system-ppt
Financial system of a country consists of a network of inter connected
system of markets, institutions and services
It connects the savings-surplus and savings-deficit institutions and
establishes a regular flow of funds in the capital market of a country.
11
CAB – Advanced Financial Management
REGULATION OF SEBI
REGARDING CAPITAL ISSUES &
STOCK EXCHANGESSEBI Guidelines for issue of fresh share capital
1. All applications should be submitted to SEBI in the prescribed form.
2. Applications should be accompanied by true copies of industrial license.
3. Cost of the project should be furnished with scheme of finance.
4. Company should have the shares issued to the public and listed in one or
more recognized stock exchanges.
5. Where the issue of equity share capital involves offer for subscription by the
public for the first time, the value of equity capital, subscribed capital privately
held by promoters, and their friends shall be not less than 15% of the total
issued equity capital.
12
CAB – Advanced Financial Management
Contd…
6. An equity-preference ratio of 3:1 is allowed.
7. Capital Cost of the projects should be as per the standard set with a
reasonable debt-equity ratio.
8. New company cannot issue shares at a premium. The dividend on
preference shares should be within the prescribed list.
9. All the details of the underwriting agreement
10. Allotment of shares to NRIs is not allowed without the approval of RBI.
11. Details of any firm allotment in favor of any financial institutions.
12. Declaration by secretary or director of the company.
13
CAB – Advanced Financial Management
SEBI guidelines for
Secondary market1. All the companies entering the capital market should give a statement
regarding fund utilization of previous issue.
2. Brokers are to satisfy capital adequacy norms so that the member firms
maintain adequate capital in relation to outstanding positions.
3. The stock exchange authorities have to alter their bye-laws with regard to
capital adequacy norms.
4. All the brokers should submit with SEBI their audited accounts.
5. The brokers must also disclose clearly the transaction price of securities
and the commission earned by them
6. The brokers should issue within 24 hours of the transaction contract notes
to the clients.
14
CAB – Advanced Financial Management
SEBI guidelines for
Secondary market
7. Margin money on certain securities has to be paid by claims so
that speculative investments are prevented.
8. Market makers are introduced for certain scrips by which brokers become
responsible for the supply and demand of the securities and the price of the
securities is maintained.
9. A broker cannot underwrite more than 5% of the public issue.
10. All transactions in the market must be reported within 24 hours to SEBI.
11. The brokers of Bombay and Calcutta must have a capital adequacy of Rs. 5
lakhs and for Delhi and Ahmadabad it is Rs. 2 lakhs.
12. Members who are brokers have to pay security deposit and this is fixed by
SEBI.
15
CAB – Advanced Financial Management
SEBI Guidelines for first
issue by new companies in
Primary Market
• A new company which has not completed 12 months of commercial
operations will not be allowed to issue shares at a premium
• If an existing company with a 5-year track record of consistent
profitability, is promoting a new company, then it is allowed to price its
issue.
• A draft of the prospectus has to be given to the SEBI before public issue.
• The shares of the new companies have to be listed either withOTCEI or
any other stock exchange.
16
CAB – Advanced Financial Management
UNIT II - SYLLABUS
Firm‟s Investment Decisions Practical application of
Capital Budgeting
Project Appraisal and evaluation methods
Risk Analysis in Investment Appraisal
17
TM
CAB – Advanced Financial Management
18
In the terminology of Advanced Financial Management, the
investment decision means capital budgeting. Investment decision
and capital budgeting are not considered different acts in
business world. In investment decision, the word „Capital‟ is
exclusively understood to refer to real assets which may assume
any shape viz. building, plant and machinery, raw material and so
on and so forth, whereas investment refers to any such real
assets.
Investment decisions
TM
CAB – Advanced Financial Management 19
Capital investment appraisal, also known as capital budgeting is primarily
a planning process which facilitates the determination of the concerned
firm's investments, both long term and short term. The components of the
firm that come under this kind of capital investment appraisal include
property, equipment, R & D projects, advertising campaigns, new plants,
new machinery etc. Thus in simple words, capital investment appraisal is
the budgeting of major capital and investment to company expenditure.
Investment Appraisal Methods
https://www.youtube.com/watch?v=4arxW7nO8zc
TM
CAB – Advanced Financial Management 20
RISK & UNCERTAINITY IN INVESTMENT
DECISION
Risks and uncertainties are inevitable in engineering projects and
infrastructure investments. Decisions about investment in infrastructure
such as for maintenance, rehabilitation and construction works can pose
risks, and may generate significant impacts on social, cultural,
environmental and other related issues. This report presents the results of
a literature review of current practice in identifying, quantifying and
managing risks and predicting impacts as part of the planning and
assessment process for infrastructure investment proposals.
TM
CAB – Advanced Financial Management 21
Capital rationingis a common practice in most of the companies as they
have more profitable projects available for investment as compared to the
capital available. In theory, there is no place for capital rationing as
companies should invest in all the profitable projects. However, a majority
of companies follow capital rationing as a way to isolate and pick up the
best projects under the existing capital restrictions.
Capital Rationing
CAB – Advanced Financial Management
Capital Budgeting
Capital budgeting (or investment appraisal) is the process of determining
the viability to long-term investments on purchase or replacement of
property plant and equipment, new product line or other projects.
22
CAB – Advanced Financial Management
Techniques of Capital
Budgeting
Payback Period measures the time in which the initial cash flow is
returned by the project. Cash flows are not discounted. Lower payback
period is preferred.
Net Present Value (NPV) is equal to initial cash outflow less sum of
discounted cash inflows. Higher NPV is preferred and an investment is
only viable if its NPV is positive.
Accounting Rate of Return (ARR) is the profitability of the project
calculated as projected total net income divided by initial or average
investment. Net income is not discounted.
Internal Rate of Return (IRR) is the discount rate at which net present
value of the project becomes zero. Higher IRR should be preferred.
Profitability Index (PI) is the ratio of present value of future cash flows of
a project to initial investment required for the project.
23
CAB – Advanced Financial Management
Risk Analysis in
Investment Appraisal
https://www.slideshare.net/himanshujaiswal/risk-analysis-in-investment
24
CAB - Advanced Financial Management
UNIT III- SYLLABUS
Firm‟s Decision and Capital Structure
Sources of long term and short term Finance
Designing Capital Structure
Practical consideration in determining capital
structure
Capital Structure theories
27
Capital Structure
Definition : Capital Structure is the mix of financial securities used to
finance the firm.
• The value of a firm is defined to be the sum of the value of the
firm‟s debt and the firm‟s equity.
• V = B + S
• If the goal of the management of the firm is to make the firm as
valuable as possible, then the firm should pick the debt-equity ratio
that makes the pie as big as possible.
Capital structure
CAB – Advanced Financial Management
Value of the Firm
28
FACTOR INFLUENCING
CAPITAL STRUCTURE
Business Risk
Company Tax exposure
Financial Flexibility
Management Style
Growth Rate
Market Condition
Cost of Fixed Assets
Size of Business Organization
Nature of business Organization
Elasticity of Capital Structure
CAB – Advanced Financial Management 29
CAB – Advanced Financial Management
Theories of Capital Structure
Net Operating Income
Approach
Traditional Approach
Modigliani and Miller Approach
Net Income Approach
31
Assumption of Capital
Structure Theories
There are only two sources of funds i.e.: debt and equity.
• The total assets of the company are given and do no change.
• The total financing remains constant. The firm can change the
degree of leverage either by selling the shares and retiring debt or by
issuing debt and redeeming equity.
• Operating profits (EBIT) are not expected to grow.
• All the investors are assumed to have the same expectation about
the future profits.
• Business risk is constant over time and assumed to be independent
of its capital structure and financial risk.
• Corporate tax does not exit. The company has infinite life. Dividend
payout ratio = 100%.
CAB – Advanced Financial Management 32
DIFFERENCE BETWEEN
CAPITAL STRUCTURE
AND CAPITALIZATION
Basis Capital Structure Capitalisation
Coverage It refers to mix of various
sources of capital E.G. Capital,
debt, etc.
It refers to all long term
securities E.G equity ,
debt and free reserves not
meant for distribution.
Scope It is an overall policy decision
about the proportion of various
sources of long term finance.
It is implementation of
policy decision about
capital structure.
Nature It is a qualitative decision It is a quantitative
decision.
CAB – Advanced Financial Management 40
Cost of Capital – Meaning, significance and concept of
cost retained earnings
Weighted Average cost of Capital
Leverages – Operating, Financial and Combined
Leverages
CAB – Advanced Financial Management
UNIT IV - SYLLABUS
41
Cost of capital
The rate of return that a firm must earn on the projects in which it invests
to maintain its market value and attract funds.
DEFINITION
COST OF CAPITAL IS THE MINIMUM RATE OF RETURN WHICH A
FIRM REQUIRES AS A CONDITION FOR UNRERTAKING AN
INVESTMENT.
MILTON H.SPENCER
CAB – Advanced Financial Management 42
COMPONENTS OF COST
OF CAPITAL
i) RETURN AT ZERO RISK
ii) PREMIUM FOR BUSINESS RISK
iii) PREMIUM FOR FINANCIAL RISK
IMPORTANCE
1.CAPITAL BUDGETING DECISION
2.DESIGNING THE CAPITAL STRUCTURE
3.DECIDING ABOUT THE METHOD OF FINANCING
4.PERFORMANCE OF TOP MANAGEMENT
CAB – Advanced Financial Management 43
FACTORS DETERMINING
THE COST OF CAPITAL
1.General economic conditions
2.Market conditions
3. Operating and financing decisions
4. Amount of financing
TYPES OF COST OF CAPITAL
Historical cost and future cost
Explicit cost and implicit cost
Specific cost and composite cost
Average cost and marginal cost
CAB – Advanced Financial Management 44
COMPUTATION OF COST
OF CAPITAL
1.COST OF DEBT
Video link: http://study.com/academy/lesson/capital-structure-the-
cost-of-capital.html
THE COST OF DEBT IS OF TWO TYPES
a. COST OF IRREDEEMABLE DEBT
b. COST OF REDMEEABLE DEBT
CAB – Advanced Financial Management 45
COMPUTATION OF
PREFERENCE SHARE
CAPITALVIDEO LINK:
https://www.slideshare.net/akankshagupta963871/new-
microsoft-office-power-point-presentation-32612359
CAB – Advanced Financial Management 50
CAB – Advanced Financial Management
Leverages
• James Horne defines “Leverage is the employment of an asset or
funds for which the firm pays a fixed cost or fixed return”.
• Leverage is the result of employment of an asset or funds having a
fixed cost of return .
• VIDEO LINK: http://study.com/academy/lesson/leverage-ratios-
types-formula.html
53
CAB – Advanced Financial Management
Operating Leverage
• OL =Contribution / EBIT
• DOL=Percent change in EBIT
Percent change in Sales
Financial Leverage
• FL=EBIT/EBT
• DFL=Percent change in EPS
Percent change in EBIT
55
CAB – Advanced Financial Management
Combined Leverage
OPERATING LEVERAGE X FINANCIAL LEVERAGE
CONTRIBUTION EBIT CONTRIBUTION----------------------- X -------- = ----------------------
EBIT EBT EBIT
56
UNIT V- SYLLABUS
Dividend Policy: Behavioural models of
dividend policy
Factors affecting dividend policy
Theories of dividend
CAB – Advanced Financial Management 57
Dividend
Dividend policy is the set of guidelines a company uses to decide how
much of its earnings it will pay out to shareholders. Some evidence
suggests that investors are not concerned with a company'sdividend
policy since they can sell a portion of their portfolio of equities if they
want cash
Definition
“A dividend is a distribution to shareholders out of profit or reserve
available for this purpose”.
-Institute of Chartered Accountants of India
-VIDEO LINK : http://study.com/academy/lesson/dividend-definition-
lesson-quiz.html
CAB – Advanced Financial Management 58
TYPES OF DIVIDEND
1.Regular dividend
2. Interim dividend
3.Stock dividend
4.Bond dividend
5.Property dividend
CAB – Advanced Financial Management 59
Determinants of dividend
policy
CAB – Advanced Financial Management
i. Dividend Pay-out Ratio:It indicates the proportion of earnings
distributed as dividend. Lower dividend pay-out ratio indicates
conservative dividend policy.
ii. Stability of Dividend: Stable dividend policy which means they
require a certain minimum percentage of dividends to be paid
regularly to them.
iii. Liquidity: Payment of dividend requires availability of cash
resources. Future investment opportunities should also be taken
into consideration. iv. Divisible Profit: This means dividend can
be declared out of divisible profit, i.e. the profit which is legally
available for distribution as dividend to the shareholders.
v. Legal Constraints: All requirements of The Company‟s Act and
SEBI guidelines must be kept in mind before declaring dividend.
60
• vi. Owner’s Consideration: Tax statuses of shareholders,
availability of investment opportunities, ownership dilutions, etc.,
are the different factors that affect shareholders.
• vii. Capital Market Conditions and Inflation: Capital market
conditions and inflation play a dominant role in developing the
dividend policy.
Objectives of Dividend Policy:i. Wealth Maximization: Dividend policy should be developed
keeping in mind the wealth maximization objective of the firm.
ii. Future Prospects: Dividend policy is a financing decision and
leads to cash outflows and also leads to decrease in availability of
cash for financing of profitable projects.
CAB – Advanced Financial Management
Determinants of dividend
policy
61
CAB – Advanced Financial Management
Objectives of Dividend
Policy
iii. Stable Rate of Dividend: Fluctuation in the rate ofreturn adversely affects the market price of shares.iv. Degree of Control: Issue of new shares or dependenceon external financing will dilute the degree of control of theexisting shareholders.
NATURE OF DIVIDEND POLICY
1.Stability of earnings
2.Age of firm
3. Regularity and stability in dividend
payment
4. Time for payment of dividend
5. Liquidity of funds
62
NATURE OF DIVIDEND
POLICY
6. Policy of control
7. Repayment of loan
8. Government policies
9. Legal requirements
10. Trade cycles
11. Need for additional capital
12. Ability to borrow
13. Extent of share distribution
14. Past dividend rates
CAB – Advanced Financial Management 63
CAB – Advanced Financial Management
Dividend Theories
Relevance Theories
(i.e. which considerdividend decision to berelevant as it affects thevalue of the firm)
Walter‟s Model
Gordon‟s Model
Irrelevance Theories
(i.e. which consider dividend decision to be irrelevant as it does not affects the value of the
firm)
Modigliani andMiller‟s Model
Traditional Approach
64
CAB – Advanced Financial Management
Prof. James E Walter argued that in the long- run the share prices
reflect only the present value of expected dividends. Retentions
influence stock price only through their effect on future dividends.
Walter has formulated this and used the dividend to optimize the
wealth of the equity shareholders.
Assumptions of Walter‟s Model:
Internal Financing
constant Return in Cost of Capital
100% payout or Retention
Constant EPS and DPS
Infinite time
Walter’s Model
65
CAB – Advanced Financial Management
Criticisms of Walter‟s Model
No External Financing
Firm‟s internal rate of return does not always remain
constant. In fact, r decreases as more and more
investment in made.
Firm‟s cost of capital does not always remain constant. In
fact, k changes directly with the firm‟s risk.
67
CAB – Advanced Financial Management
Gordon‟s Model
According to Prof. Gordon, Dividend Policy almost always affectsthe value of the firm. He Showed how dividend policy can beused to maximize the wealth of the shareholders.
Assumptions:
All equity firm
No external Financing
Constant Returns
Constant Cost of Capital
Perpetual Earnings
No taxes
Constant Retention
Cost of Capital is greater then growth rate (k>br=g)
68
CAB – Advanced Financial Management
Formula of Gordon‟s Model
Where,
P = Price
E = Earning per Share
b = Retention Ratio
k = Cost of Capital
br = g = Growth Rate
P =E (1 – b)
K - br
Criticisms of Gordon‟s model
As the assumptions of Walter‟s Model and Gordon‟s Model are same
so the Gordon‟s model suffers from the same limitations as the
Walter‟s Model.
69
CAB – Advanced Financial Management
Modigliani and Miller‟s
Approach
Assumption
Capital Markets are Perfect and people are Rational
No taxes
Floating Costs are nil
Investment opportunities and future profits of firms are known
with certainty (This assumption was dropped later)
Investment and Dividend Decisions are independent
70
CAB – Advanced Financial Management
Formula of M-M‟s Approach
=1 ( D1+P1 )
(1 + p)P
o
Where,Po = Market price per share at time 0,
D1 = Dividend per share at time1,
P1 = Market price of share at time1
71
CAB – Advanced Financial Management
Criticism of M-M
Model
No perfect Capital Market
Existence of Transaction Cost
Existence of Floatation Cost
Lack of Relevant Information
Differential rates of Taxes
No fixed investment Policy
Investor‟s desire to obtain income
72
UNIT VI - SYLLABUS
Working Capital Management
Theories Vs Practice – principles of working capital
Working Capital forecast
Individual Current Asset Management
CAB – Advanced Financial Management 73
What is working capital?
Working capital is calculated by subtracting current liabilities from
current assets. Current assets include cash, marketable securities,
inventory, accounts receivable and other short-term assets to be used
within the year
CAB – Advanced Financial Management 74
CAB – Advanced Financial Management
Estimation of Required Working Capital…
For estimation of working capital, following four step procedure is
applicable:
Estimation of cash cost of the various current assets required
by the firm.
Estimation of current liabilities of the firm.
Calculation of net working capital.
Add percentage of contingency.
http://study.com/academy/lesson/how-to-calculate-net-working-
capital-definition-formula.html
https://www.youtube.com/watch?v=eaGgCJtHxuE
75
CAB – Advanced Financial Management
Cont… Raw Material = Budgeted Production in Units * Raw Material Cost
per unit * Average Raw material Holding Period / 12 months or 365
days.
WIP = Budgeted Production in Units * Estimated WIP Cost per unit *
Average WIP Holding Period / 12 months or 365 days.
Finished Goods Inventory = Budgeted Production in Units * Cost
of Goods produced * finished Goods Holding period / 12 months or
365 days.
Investment in Debtors = Budgeted Credit Sales in Unit * Cost of
Sales per Unit * Average Debt Collection Period / 12 months or 365
days.
76
CAB – Advanced Financial Management
Estimation of Current
Liabilities…
Creditors = Budgeted Production in Units * Raw Material Cost per
unit * Credit period Allowed by Suppliers / 12 months or 365 days.
Direct Wages = Budgeted Production in Units * Direct Wages Cost
per unit * Lag in Payment of Wages / 12 months or 365 days.
Overheads = Budgeted Production in Units * Overhead Cost per
unit * Lag in Payment of Overheads / 12 months or 365 days.
Operating cycle… Operating cycle is the time that elapses to convert raw materials
into cash.
Operating cycle of Manufacturing firm.
Operating cycle of a Non manufacturing firm.
http://study.com/academy/lesson/operating-cycle-cash-cycle-
definition-calculations.html
77
Concepts of Working Capital
1. Gross Working Capital
• Total Current assets
• Where Current assets are the assets that can be converted into
cash within an accounting year & include cash , debtors etc.
• Referred as “Economics Concept” since assets are employed to
derive a rate of return.
2. Net Working Capital
• CA – CL
• Referred as „point of view of an Accountant‟.
• It indicates liquidity position of a firm & suggests the extent to which
working capital needs may be financed by permanent sources of
funds.
CAB – Advanced Financial Management 79
OPERATING CYCLE OF
MANUFACTURING FIRM
RAW
MATERIALS
FINISHED
GOODS
CASH
WORK-IN
PROGRESSDEBTORS
CAB – Advanced Financial Management 80
Sources of working capital
Sources of
Working
capital
Long term
sources
Short term
sources
Internal External
CAB – Advanced Financial Management 82
Determinants of working
capital
• General nature of business
• Production cycle
• Business cycle
• Credit policy
• Production policy
• Growth and expansion
• Profit level
• Operating efficiency
CAB – Advanced Financial Management 83
CAB – Advanced Financial Management
Current Asset Management
https://www.slideshare.net/Jacknickelson/chapter-7-current-asset-management
84
UNIT VII - SYLLABUS
• Capital Asset Pricing: Sharpe‟s CAPM
• Security Analysis and portfolio Selection
• Markowitz Portfolio theory
CAB – Advanced Financial Management 85
TM
KDF4B – Investment Analysis & Portfolio Theory 86
CAPM is a model that describes the relationship
between risk and expected (required) return; in
this model, a security‟s expected (required)
return is the risk-free rate plus a premium based
on the systematic risk of the security.
CAPITAL ASSET PRICING MODEL
TM
KDF4B – Investment Analysis & Portfolio Theory
https://www.youtube.com/watch?v=gzxKd2S2MdU
CAPITAL ASSET PRICING
MODEL
87
TM
KDF4B – Investment Analysis & Portfolio Theory 88
1. Capital markets are efficient.
2. Homogeneous investor expectations over a given period.
3.Risk-free asset return is certain (use short- to intermediate-
term Treasuries as a proxy).
4.Market portfolio contains only systematic risk (use S&P 500
Index or similar as a proxy).
CAPM ASSUMPTIONS
TM
KDF4B – Investment Analysis & Portfolio Theory 89
• An index of systematic risk.
• It measures the sensitivity of a stock‟s returns
to changes in returns on the market portfolio.
• The beta for a portfolio is simply a weighted
average of the individual stock betas in the
portfolio.
WHAT IS BETA?
TM
KDF4B – Investment Analysis & Portfolio Theory 90
https://www.youtube.com/watch?v=kq9T3yWuqR4
Security Analysis and
Portfolio Selection