You manage a portfolio in which you invest half of your money in T-Bills and the other half in a mutual fund that is indexed to match the market portfolio.What is the beta of this portfolio?
A) 0
B) 0.25
C) 0.50
D) 0.75
E) 1.00

Question

Quizplus · Accepted Answer

Take the weighted average of the individual betas. Remember the market has a beta of 1.0 and the risk free asset a beta of 0. β_p = w₁β₁ + . . . + w_nβ_n β_p = (0.50 × 1.0) + (0.50 × 0) β_p = 0.50 × 1.0 = 0.50 The beta for T-Bills (a risk-free asset) is 0, and the beta for the market (by definition) is 1. With half invested in each, that makes the beta of the portfolio 0.5.

You Manage a Portfolio in Which You Invest Half of Your