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.
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Homework Answers

Answer #1

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

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