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Question-2 An investment advisor has recommended a $100,000 portfolio containing four assets: (1) Asset B, (2)...

Question-2

An investment advisor has recommended a $100,000 portfolio containing four assets: (1) Asset B, (2) Asset D, (3) a risk-free asset, and (4) a market portfolio. $20,000 will be invested in Asset B, with a beta of 1.5; $25,000 will be invested in Asset D, with a beta of 2.0; $25,000 will be invested in the risk-free asset, and $30,000 will be invested in the market portfolio. What is the beta of the Portfolio?

YOU MUST SHOW YOUR WORK.

YOU MUST ALSO SHOW CALCULATOR ENTRIES WHEN APPLICABLE.

FINAL ANSWER

The beta of the Portfolio
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Answer #1

Beta of a portfolio = Weighted average beta of all stocks in the portfolio

Asset Beta Amount Invested Weight
Asset B 1.5 20000 0.2
Asset D 2 25000 0.25
Risk Free Asset 0 25000 0.25
Market Portfolio 1 30000 0.3
100000 1

Beta of Portfolio =( Beta B x Weight of B) + (Beta of D x Weight of D)+( Beta of Risk free asset x Weight of Risk free asset) + ( Beta of market x Weight of market)

= (1.5 x 0.2) +(2 x 0.25) + (0 x 0.25) + (1x0.3)

= 1.1

Beta of Portfolio = 1.1

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