Consider an investor who owns three assets: asset 1, asset 2, and asset 3 and invests equally in each of the three assets. If the beta of asset 1 is 1.2, the beta of asset 2 is 1.5 and the Beta of asset 3 is zero, then what is the beta of the investor's portfolio.

Question

Quizplus · Accepted Answer

To calculate the beta of the portfolio when the investor has an equal investment in all three assets, we use the formula:

Beta of portfolio = (weight of asset 1 x beta of asset 1) + (weight of asset 2 x beta of asset 2) + (weight of asset 3 x beta of asset 3)

Since the investor invests equally in all three assets, the weight of each asset is 1/3.

Beta of portfolio = (1/3 x 1.2) + (1/3 x 1.5) + (1/3 x 0) = 0.9

Therefore, the beta of the investor's portfolio is 0.9, which is option B.

Consider an Investor Who Owns Three Assets: Asset 1, Asset