Answer:
Beta of Stock B = 1.76
Explanation:
The portfolio is made up of three components.
The Tbills have are risk free thus have 0 beta.
The stock A has risk equivalent to market which means the beta for Stock A is 1 as the market always has a beta of 1.
Let x be the beta of Stock B.
Portfolio beta = 1.18
The portfolio beta is calculated by taking the weighted average of individual betas of securities in the portfolio.
So,
1.18 = (0.2 * 0) + (0.3 * 1) + (0.5 * x)
1.18 = 0 + 0.3 + 0.5x
1.18 - 0.3 = 0.5x
0.88 / 0.5 = x
x = 1.76
