Nico wants to invest all of his money in just two assets: the risk-free asset and the market portfolio. What is Nico's portfolio beta if he invests a quarter of his money in the market portfolio and the rest in the risk free asset?
A) 0.00
B) 0.25
C) 0.75
D) 1.00

Question

Quizplus · Accepted Answer

If Nico invests a quarter of his money in the market portfolio, then he is investing 75% (100% - 25%) in the risk-free asset. The beta of the risk-free asset is 0, so the portfolio beta would be:

Portfolio beta = (0.25 x beta of market portfolio) + (0.75 x beta of risk-free asset)

Portfolio beta = (0.25 x 1) + (0.75 x 0) = 0.25

Therefore, the answer is B.

Nico Wants to Invest All of His Money in Just