Jeanne Lewis is attempting to evaluate two possible portfolios consisting of the same five assets but held in different proportions. She is particularly interested in using beta to compare the risk of the portfolios and, in this regard, has gathered the following data
Portfolio Weights
Asset Asset Beta Portfolio A
Portfolio B
1 1.33 12% 31%
2 0.71 33% 11%
3 1.23 10% 25%
4 1.15 5% 17%
5 0.86 40% 16%
Total 100% 100%
a. Calculate the betas for portfolios A and B.
b. Portfolio (blank) is slightly less risky than the market, while portfolio (blank) is more risky than the market. Portfolio's (blank) return will move more than portfolio (blank's) for a given increase or decrease in market risk. Portfolio (blank) is the more risky portfolio.
Answer (a):
Beta of Portfolio A = 1.33 * 12% + 0.71 * 33% + 1.23 * 10% + 1.15 * 5% + 0.86 * 40% = 0.92
Beta of Portfolio B = 1.33 * 31% + 0.71 * 11% + 1.23 * 25% + 1.15 * 17% + 0.86 * 16% = 1.13
Hence:
Beta of Portfolio A = 0.92
Beta of Portfolio B = 1.13
Answer (b):
Portfolio A is slightly less risky than the market, while portfolio B is more risky than the market. Portfolio B's return will move more than portfolio A's for a given increase or decrease in market risk. Portfolio B is the more risky portfolio.
Jeanne Lewis is attempting to evaluate two possible portfolios consisting of the same five assets but...
Jeanne Lewis is attempting to evaluate two possible portfolios consisting of the same five assets but held in different proportions. She is particularly interested in using beta to compare the risk of the portfolios and, in this regard, has gathered the following data: a. Calculate the betas for portfolios A and B. b. Compare the risk of each portfolio to the market as well as to each other. Which portfolio is more risky? (Round to three decimal places.) a. The...
Jeanne Lewis is attempting to evaluate two poss ble portfolios consisting of the same five assets but held in different proportions. She is particularly interested in using beta to compare the risk of the portfolios and, in this regard, has gathered the following data a. Cakulale the betas for prfclios A and B b. Compare the risk ot each pcrttolio to the market as well as to cach other Which portolio is more risky? a. The beta at portfolio A...
(Round answer to three decimal places) Jeanne Lewis is attempting to evaluate two possible portfolios consisting of the same five assets but held in different proportions. She is particularly interested in using beta to compare the risk of the portfolios and, in this regard, has gathered the following data: a. Calculate the betas for portfolios A and B. b. Compare the risk of each portfolio to the market as well as to each other. Which portfolio is more risky? i...
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