A portfolio has 40% invested in Asset 1 and 60% invested in Asset 2.If Asset 1 has a beta of 1.2 and Asset 2 has a beta of 1.8,what's the beta of the portfolio?

Question

Quizplus · Accepted Answer

Suppose the expected return of Asset 1 is R₁,the expected return of Asset 2 is R₂,the risk free rate is R_f,and the market return is R_m. Portfolio expected return = 0.4R₁ + 0.6R₂ = 0.4[R_f+1.2(R_m-R_f)]+ 0.6[R_f+1.8(R_m-R_f)]= R_f+1.56(R_m-R_f)]

A Portfolio Has 40% Invested in Asset 1 and 60