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?
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The beta of the Portfolio
Beta of a portfolio = Weighted average beta of all stocks in the portfolio
|Risk Free Asset||0||25000||0.25|
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)
Beta of Portfolio = 1.1
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