Question

Suppose the standard deviation of the market return is 17%. a. What is the standard deviation...

Suppose the standard deviation of the market return is 17%.

a. What is the standard deviation of returns on a well-diversified portfolio with a beta of 1.4? (Enter your answer as a percent rounded to the nearest whole number.)

Standard deviation             %

b. What is the standard deviation of returns on a well-diversified portfolio with a beta of 0? (Enter your answer as a percent rounded to the nearest whole number.)

Standard deviation             %

c. A well-diversified portfolio has a standard deviation of 10%. What is its beta? (Round your answer to 2 decimal places.)

Beta            

d. A poorly diversified portfolio has a standard deviation of 17%. What can you say about its beta?

a.Less than 1.0

b. Equal to 1.0

c. Greater than 1.0

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Homework Answers

Answer #1

Answer to Part a.

Standard Deviation of Returns = Standard Deviation of Market * Beta
Standard Deviation of Returns = 17% * 1.4
Standard Deviation of Returns = 23.80%

Answer to Part b.

Standard Deviation of Returns = Standard Deviation of Market * Beta
Standard Deviation of Returns = 17% * 0
Standard Deviation of Returns = 0

Answer to Part c.

Beta = Standard Deviation of Portfolio / Standard Deviation of Market Return
Beta = 10% / 17%
Beta = 0.59

Answer to Part d.

Beta is less than 1.0, as the Standard Deviation of Portfolio and market return is same but some risk are unique.

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