You are given the following information about a portfolio you are to manage. For the long term, you are bullish, but you think the market may fall over the next month. $\begin{array}{lc}
\text { Portfolio Value} &\$ \quad \text { 1million } \
\text { Portfolio's Beta} &0.60\
\text { Current S\&P500 value } &1400\
\text {Anticipated S\&P500 Value } &1200\
\end{array}$
If the anticipated market value materializes, what will be your expected loss on the portfolio?
A) 14.29%
B) 16.67%
C) 15.43%
D) 8.57%
E) 6.42%

Question

You are given the following information about a portfolio you are to manage. For the long term, you are bullish, but you think the market may fall over the next month. $\begin{array}{lc}
  \text {  Portfolio Value} &\$ \quad \text { 1million } \
 \text {  Portfolio's Beta} &0.60\
 \text { Current S\&P500 value } &1400\
 \text {Anticipated S\&P500 Value  } &1200\
\end{array}$
 If the anticipated market value materializes, what will be your expected loss on the portfolio?
A) 14.29%
B) 16.67%
C) 15.43%
D) 8.57%
E) 6.42%

Quizplus · Accepted Answer

EThe expected loss on the portfolio can be calculated using the beta of the portfolio and the anticipated change in the S&P 500 value. The S&P 500 is expected to move from 1400 to 1200, a decrease of 200 points. This represents a decrease of $\frac{200}{1400} = 0.1429$ or 14.29%. Given the portfolio's beta of 0.60, the portfolio is expected to move 60% as much as the market, so the expected loss on the portfolio would be $0.1429 \times 0.60 = 0.0857$ or 8.57%. This calculation directly addresses the expected loss based on the portfolio's sensitivity to market movements (beta).Additionally, the choice E (6.42%) is incorrect based on the calculation and information provided. The correct calculation leads to an 8.57% expected loss, directly correlating with the portfolio's beta and the anticipated market movement. There was a misunderstanding in the initial response; only one correct answer, D (8.57%), aligns with the calculated expected loss.

You Are Given the Following Information About a Portfolio You