Portfolio betas Rose Berry is attempting to evaluate two possible portfolios, wh
ID: 2705232 • Letter: P
Question
Portfolio betas 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.Asset Asset Beta Portfolio A Portfolio B
1 1.3 10 30
2 0.7 30 10
3 1.25 10 20
4 1.1 10 20
5 0.9 40 20
a. Calculate the betas for portfolios A and B.
betas for portfolios A =1.30*10%+0.70*30% + 1.25*10% +1.10*10% +0.90*40% =0.935
betas for portfolios B =1.30*30% +.7*10% +1.25*20% +1.1*20% +.9*20% =1.11
b. Compare the risks of these portfolios to the market as well as to each other. Which portfolio is more risky?
Portfolio betas 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.
Asset Asset Beta Portfolio A Portfolio B
1 1.3 10 30
2 0.7 30 10
3 1.25 10 20
4 1.1 10 20
5 0.9 40 20
a. Calculate the betas for portfolios A and B.
betas for portfolios A =1.30*10%+0.70*30% + 1.25*10% +1.10*10% +0.90*40% =0.935
betas for portfolios B =1.30*30% +.7*10% +1.25*20% +1.1*20% +.9*20% =1.11
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= .0.935
betas for portfolios B= 1.11
portfolios WITH HIGH BETA ----------MORE risky-SO portfolios B=RISKY