oldllow sofBoquestionld-1&fiushed-fabeedd;»3905757¢ erwinyes&fr; Christina Lover
ID: 2729388 • Letter: O
Question
oldllow sofBoquestionld-1&fiushed-fabeedd;»3905757¢ erwinyes&fr; Christina Lovering 5/29/16 10:52 AM Overview mework: Assignment 4 (7) (2) (3) (3) ) (a) (D) (10 , 0 0 0 0 0 PB 23 (Samar lo) 0of10 a rolete Exercise Score: 0of10pts Assignment Score: 0% (0 of 100 pts) Portfolio betas Personal Fmance Problem Rose Berry s attempting to evaluate two possible portfolios, which consist of the same five assets held m different proportons. She s particularly it rested m using beta to compare the nsks of the portfolios, so she has gathered the data shown in the following table. a. Calculate the betas for portfolios A and B Compare he risks of hese portfolios to the market as well as to each other. which portfolio is more risky? a. The beta for portfolio A is(Round to four dec mal places.) Data Table (Click on the icon located on the top-right corner of the data table below in order to copy its contents into a spreadsheet.) Portfolio weights Asset Asset beta Portfolio A Portfolio B 1.23 20% 0.61 10 1.25 40% Enter your answer in the answer box, then ack Check A 1.67 10% 15% 0.55 15% 2 parts remaining Totals 100% 100%Explanation / Answer
Ans) a) Calculation of Beta for portfolio A and B
Beta for a portfolio = Weight A * Beta A + Weight B * Beta B .........
Beta for portfolio A = 1.23 * 25% + 0.61 * 35% + 1.25 * 5% + 1.67 * 10% + 0.55 * 25%
= 0.3075 + 0.2135 + 0.0625 + 0.167 + 0.1375
= 0.888
Beta fpr portfolio B = 1.23 * 20% + 0.61 * 10% + 1.25 * 40% + 1.67 * 15% + 0.55 * 15%
= 0.246 + 0.061 + 0.5 + 0.2505 + 0.0825
= 1.14
b) Risk is compared by using Beta of the portfolios
Market beta is used as the benchmark to know the risk invoived. Beta of market is always 1
Beta of portfolio A = 0.888
Beta of portfolio B = 1.14
Comparing portfolio A with market = Portfolio A is less risky than market as its beta is less than 1 i.e 0.888
Comparing portfolio B with market = Portfolio B is more risky that market as its is greater than 1 i,e 1.14
Comparing portfolio A and B we get that portfolio B is more risky than portfolio A as beta of portfolio B is greater than beta of portfolio A ie 1.14 > 0.888
Higher beta than the market beta , higher returns than market and more risky
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.