Portfolio betas Personal Finance Problem Rose Berry is atter different proportio
ID: 2618593 • Letter: P
Question
Portfolio betas Personal Finance Problem Rose Berry is atter 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: 85 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? a. The beta for portfolio A is (Round to four decimal places.) The beta for portfolio B is(Round to four decimal places.) b. Which portfolio is more risky? (Select the best answer below.) O A. Portfolio A B. Portfolio B O c. They are the same.Explanation / Answer
a.
Beta for portfolio A = 1.0245
b.
Beta for portfolio B = 1.2575
c.
Correct option is > Portfolio B
As beta of portfolio B is higher it implies that portfolio B is more risky.
Working for beta:
Beta of portfolio A
Beta of portfolio B
Asset
Asset beta
A weight
B weight
Asset beta x A weight
Asset beta x B weight
1
1.79
15%
20%
0.2685
0.3580
2
0.46
30%
10%
0.1380
0.0460
3
1.36
15%
35%
0.2040
0.4760
4
1.95
10%
10%
0.1950
0.1950
5
0.73
30%
25%
0.2190
0.1825
Total
100%
100%
1.0245
1.2575
Beta of portfolio A
Beta of portfolio B
Asset
Asset beta
A weight
B weight
Asset beta x A weight
Asset beta x B weight
1
1.79
15%
20%
0.2685
0.3580
2
0.46
30%
10%
0.1380
0.0460
3
1.36
15%
35%
0.2040
0.4760
4
1.95
10%
10%
0.1950
0.1950
5
0.73
30%
25%
0.2190
0.1825
Total
100%
100%
1.0245
1.2575