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 r r }
\text { Portfolio Value } & \$ \quad 1 \text { million } \
\text { Portfolio's Beta } & 0.86 \
\text { Current S\&P500 Value } & 990 \
\text { Anticipated S\&P500 Value } & 915 \

\end{array}$$ What is the dollar value of your expected loss?
A) $142,900
B) $65,200
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 r r } 
\text { Portfolio Value } & \$ \quad 1 \text { million } \
\text { Portfolio's Beta } & 0.86 \
\text { Current S\&P500 Value } & 990 \
\text { Anticipated S\&P500 Value } & 915 \

\end{array}$$ What is the dollar value of your expected loss?
A) $142,900
B) $65,200
C) $85,700
D) $30,000
E) $64,200

Quizplus · Accepted Answer

The expected loss is calculated by multiplying the portfolio's beta by the percentage change in the S&P 500 and then by the portfolio value. The percentage change in the S&P 500 is (915 - 990) / 990 = -0.0758. The expected loss is 0.86 * -0.0758 * $1,000,000 = $65,188, approximately $65,200.

You Are Given the Following Information About a Portfolio You