Question

# You have a portfolio with 60% allocation of funds to the market portfolio and remaining amount...

You have a portfolio with 60% allocation of funds to the market portfolio and remaining amount is allocated to a risk-free asset. The beta of your portfolio is _____ .

 a. 0 b. 0.6 c. 1 d. 1.5

Which of the following statements is false?

 a. SML is the graphical representation of expected return-beta relationship of the CAPM. b. Slope of SML is the market risk premium. c. Alpha is the abnormal rate of return on a security in excess of that predicted CAPM. d. Underpriced assets plots below the SML.

Dear student, only one question is allowed at a time. I am answering the first question

Beta of the market portfolio is 1

Beta of the risk free asset is 0 as there is no risk involved

So, weighted average beta

= Weight of market x Beta of market + Weight of risk free asset x Beta of the risk free asset

= 0.60 x 1 + (1 – 0.60) x 0

= 0.60

(Total weight = 1, So, weight of remaining investment = 1 – 0.60 = 0.40)

So, as per above calculations, option b is the correct option