A portfolio contains four assets. Asset 1 has a beta of .8 and comprises 30% of the portfolio. Asset 2 has a beta of 1.1 and comprises 30% of the portfolio. Asset 3 has a beta of 1.5 and comprises 20% of the portfolio. Asset 4 has a beta of 1.6 and comprises the remaining 20% of the portfolio. If the riskless rate is expected to be 3% and the market risk premium is 6%,what is the beta of the portfolio?
A) 0.80
B) 1.10
C) 1.19
D) 1.25
E) 1.40

Question

Quizplus · Accepted Answer

The beta of the portfolio can be calculated as the weighted average of the betas of the individual assets in the portfolio.

Portfolio beta = (0.3 x 0.8) + (0.3 x 1.1) + (0.2 x 1.5) + (0.2 x 1.6) 
              = 0.24 + 0.33 + 0.3 + 0.32 
              = 1.19

Therefore, the answer is C) 1.19.

A Portfolio Contains Four Assets