question archive A portfolio contains four assets
A portfolio contains four assets
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A portfolio contains four assets. Asset 1 has a beta of 1.5 and comprises 22% of the portfolio. Asset 2 has a beta of 1.1 and comprises 26% of the portfolio. Asset 3 has a beta of 1 and comprises 17% of the portfolio. Asset 4 has a beta of 1.1 and comprises the remaining 35% of the portfolio. If the risk-free rate is expected to be 2% and the market risk premium is 8%, what is the beta of the portfolio, the expected return on the portfolio and the market? Beta is 1.171, expected portfolio return is 11.37%, and expected market return is 10.00%. Beta is 1.175, expected portfolio return is 9.40%, and expected market return is 8.00%. Beta is 1.171, expected portfolio return is 11.71%, and expected market return is 10.00%. Beta is 1.175, expected portfolio return is 11.40%, and expected market return is 10.00%.
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Portfolio Beta = Weight of Asset 1 * Beta of Asset 1 + Weight of Asset 2 * Beta of Asset 2 + Weight of Asset 3 * Beta of Asset 3 + Weight of Asset 4 * Beta of Asset 4
Portfolio Beta = 0.22 * 1.50 + 0.26 * 1.10 + 0.17 * 1.00 + 0.35 * 1.10
Portfolio Beta = 1.171
Expected Return of Portfolio = Risk-free Rate + Portfolio Beta * Market Risk Premium
Expected Return of Portfolio = 2.00% + 1.171 * 8.00%
Expected Return of Portfolio = 11.37%
Expected Return of Market = Risk-free Rate + Market Risk Premium
Expected Return of Market = 2.00% + 8.00%
Expected Return of Market = 10.00%
