Security Market line . Your father just learned from his financila advisor that
ID: 2777223 • Letter: S
Question
Security Market line . Your father just learned from his financila advisor that his retirment porfolio has a bet of 1.83. He has turned to you to explain to him what this means. Specifically descripbe what you would expect to happen to the value of his retirment fund if the following were to occur. A. the value of the market prtfolio rises by 8% the value of yoru fathers retirment fund should (decrease of increase) by how much %. B if the value of the market prtfolio drops by 8% then the value of your father's retirment fund should either (increase or decrease) by what %. C. Your father's retirment porfolio is (more or less) risky than the market portfolio becuse your father's retirment porfolio beta, it's systematic risk is (less or greater) then the mraket's portfolio beta.
Explanation / Answer
Beta = 1.83
= 1.83 x 8%
= 14.64%
It will increase by 14.64%.
b) Change in the value of portfolio =beta x change in market portfolio
= 1.83 x -8%
= -14.64%
It will decrease by -14.64%.
c) since portfolio beta is higher than 1, our portfolio is riskier than market portfolio.