What is the portfolio beta if 25% of your funds are invested in the market portfolio, 25% in an asset with twice as much risk as the market portfolio, and the remainder in a risk-free asset?
A) 0.25
B) 0.50
C) 0.75
D) 1.00
E) 1.25

Question

Quizplus · Accepted Answer

The portfolio beta is calculated as the weighted average of the betas of the individual assets. The market portfolio has a beta of 1. An asset with twice the risk of the market has a beta of 2. The risk-free asset has a beta of 0. Therefore, the portfolio beta is (0.25 * 1) + (0.25 * 2) + (0.50 * 0) = 0.25 + 0.50 + 0 = 0.75.

What Is the Portfolio Beta If 25% of Your Funds