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. $$\begin{array} { | l | l | }
\hline \text { Portfolio Value } & \$ 1 \text { million } \
\hline \text { Portfolio's Beta } & 0.60 \
\hline \text { Current S\&P500 Value } & 1400 \
\hline \text { Anticipated S\&P500 Value } & 1200 \
\hline
\end{array}$$
-What is the dollar value of your expected loss?
A)$142,900
B)$16,670
C)$85,700
D)$30,000
E)$64,200

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. $$\begin{array} { | l | l | } 
\hline \text { Portfolio Value } & \$ 1 \text { million } \
\hline \text { Portfolio's Beta } & 0.60 \
\hline \text { Current S\&P500 Value } & 1400 \
\hline \text { Anticipated S\&P500 Value } & 1200 \
\hline
\end{array}$$
-What is the dollar value of your expected loss?
A)$142,900
B)$16,670
C)$85,700
D)$30,000
E)$64,200

Quizplus · Accepted Answer

The expected loss can be calculated using the following formula:

Expected loss = Portfolio value * Portfolio beta * (Anticipated market return - Current market return)

Plugging in the given values, we get:

Expected loss = $1,000,000 * 0.60 * (1200/1400 - 1) = $85,714

Therefore, the expected loss is $85,700.

Option C is the best choice.

You Are Given the Following Information About a Portfolio You