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An investor divides her portfolio into thirds, with one part in Treasury bills, one part in...

An investor divides her portfolio into thirds, with one part in Treasury bills, one part in a market index, and one part in a diversified portfolio with beta of 1.50. What is the beta of the investor’s overall portfolio?

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Answer #1

Calculate beta of the portfolio as follows:

Portfolio beta = Each beta* Each weight

Portfolio beta = ((1/3)*1) +((1/3)*0) + ((1/3)*1.5)

Portfolio beta = 0.3333 + 0 + 0.5

Portfolio beta = 0.83

Note:

Beta of market is 1.

Beta of treasury bill is 0.

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