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. $\begin{array}{lc}
\text { Portfolio Value} &\$ \quad \text { 1million } \
\text { Portfolio's Beta} &0.86\
\text { Current S\&P500 value } &990\
\text {Anticipated S\&P500 Value } &915\
\end{array}$

If the anticipated market value materializes, what will be your expected loss on the portfolio?
A) 7.58%
B) 6.52%
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. $\begin{array}{lc}
  \text {  Portfolio Value} &\$ \quad \text { 1million } \
 \text {  Portfolio's Beta} &0.86\
 \text { Current S\&P500 value } &990\
 \text {Anticipated S\&P500 Value  } &915\
\end{array}$

If the anticipated market value materializes, what will be your expected loss on the portfolio?
A) 7.58%
B) 6.52%
C) 15.43%
D) 8.57%
E) 6.42%

Quizplus · Accepted Answer

The expected loss on the portfolio can be calculated using the formula for the expected return based on the portfolio's beta and the expected market return. The expected market return is the percentage change in the S&P500 value, which is $(915 - 990) / 990 = -0.0758$ or -7.58%. Given the portfolio's beta of 0.86, the expected portfolio return is $0.86 \times -0.0758 = -0.065188$, or -6.52%.

You Are Given the Following Information About a Portfolio You