You have a portfolio with the following Environmental Risk Scores for each of your investments. Given the weights in each investment, what is the Environmental Risk Score for your portfolio? If the weights don't sum to one then the remainder is in cash with no environmental risk. (Answer to one decimal place, 6.1)

Tesla Ford Chevron Home Depot JP Morgan Starbucks Microsoft
Weight (in %) 6 14 13 5 14 4 12
Env Risk Score 2 6 17 6 3 9 4

Question

You have a portfolio with the following Environmental Risk Scores for each of your  investments. Given the weights in each investment, what is the Environmental Risk Score for your portfolio? If the weights don't sum to one then the remainder is in cash with no environmental risk. (Answer to one decimal place, 6.1)

Tesla	Ford	Chevron	Home Depot	JP Morgan	Starbucks	Microsoft
Weight (in %)	6	14	13	5	14	4	12
Env Risk Score	2	6	17	6	3	9	4

BlackTom AI · Accepted Answer

We start by restating the problem: we have seven investments with given weights (as percentages) and an environmental risk score for each. If the weights don’t sum to one, the leftover portion is cash with zero environmental risk. We need the portfolio’s Environmental Risk Score to one decimal place.

First, sum the weights to see how much is invested versus in cash. The weights are: 6, 14, 13, 5, 14, 4, 12. Adding them: 6 + 14 + 13 + 5 + 14 + 4 + 12 = 68. So 68% of the portfolio is invested, and the remaining 32% is cash with zero environmental risk.

Next, compute the weighted contribution of each investment to the portfolio risk. Multiply each weight by its environmental risk score:
- Tesla: 6% × 2 = 12
- Ford: 14% × 6 = 84
- Chevron: 13% × 17 = 221
- Home Depot: 5% × 6 = 30
- JP Morgan: 14% × 3 = 42
- Starbucks: 4% × 9 = 36
- Microsoft: 12% × 4 = 48

Now sum these products: 12 + 84 + 221 + 30 + 42 + 36 + 48 = 473.

Since the weights are percentages, the overall Environmental Risk Score for the portfolio is the total divided by 100 to convert from percentage-weighted contributions to a single score: 473 / 100 = 4.73.

Because the cash portion has zero environmental risk, it does not add to the sum, so the final portfolio score remains 4.73. Rounding to one decimal place yields 4.7.

If one wanted to interpret the result differently by normalizing only the invested portion (i.e., dividing by 68 instead of 100), the result would be higher, but the problem explicitly specifies that the remainder is cash with no environmental risk, which is accounted for by dividing by 100 in the weighted-sum approach above.

FINA3401.13791.202610 Asset Pricing Quiz

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