Rose Berry is attempting to evaluate two possible portfolios, which consist of t

Question

Rose Berry is attempting to evaluate two possible portfolios, which consist of the same five assets held in different proportions. She is particularly interested in using beta to compare the risks of the portfolios, so she has gathered the data shown in the following table.

Portfolio weights
Asset Asset beta Portfolio A Portfolio B
1 1.30 10% 30%
2 0.70 30 10
3 1.25 10 20
4 1.10 10 20
5 0.90 40 20
Totals 100% 100%

a. Calculate the betas 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?

Explanation / Answer

betas for portfolios A= .935 betas for portfolios B= 1.11

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