Question

You have $200,000 and you borrow $100,000 and invest all of it ($300,000) in a mutual fund that has a beta of 1. What your beta

Answer 1

The beta of the investor will be calculated after ascertainment of debt capital and equity capital.

Beta of the equity capital is higher than zero but it is retained, so it is not clearly specified whereas beta of debt is already believed to be 0.

but when we are using borrowed money and our own money in order to invest into the mutual fund then we will have the beta of the mutual fund as our units will be representative of the betas of the mutual fund.

Total beta of the investor will be = (1*2/3)+(0*1/3)= .6667