Question

Chapter 8-Q2 Portfoliobetas Rose Berry is attempting to evaluate two possible portfolios, which consist of the same five acts held in different proportions. She is particularly inter ested in using beta to compare the risks of the portfolios, she has gathered the data shown in the following table. Auct 1 10 Awat beta 1.30 070 1.25 1.10 090 Portfolio 30% 10 20 20 3 4 5 10 10 40 100% . Calculate the beas for portfolios A and B b. Compare the risks of these portfolios to the market as well as to each other Which portfolio is more risky!

Answer 1

Answer to Part a.

Beta of Portfolio A = (0.10 * 1.30) + (0.30 * 0.70) + (0.10 * 1.25) + (0.10 * 1.10) + (0.40 * 0.90)
Beta of Portfolio A = 0.935

Beta of Portfolio B = (0.30 * 1.30) + (0.10 * 0.70) + (0.20 * 1.25) + (0.20 * 1.10) + (0.20 * 0.90)
Beta of Portfolio B = 1.110

Answer to Part b.

Beta of Market is always 1.

Beta of Portfolio A is less than the beta of market, hence it is less risky, whereas Beta of Portfolio B is more than the beta of market, hence it is more risky.