If you have a portfolio with a market value of $100 million and a beta (measured against the S&P 500) of 1.5, then if the market rises by 10 percent, what value would you expect your portfolio to have?

Question

Quizplus · Accepted Answer

The expected value of the portfolio can be calculated as follows:

Expected return = Market return x Beta
Expected return = 10% x 1.5
Expected return = 15%

Therefore, the expected increase in the value of the portfolio would be:

Increase in value = Market value x Expected return
Increase in value = $100 million x 15%
Increase in value = $15 million

Thus, the new market value of the portfolio would be:

New market value = Market value + Increase in value
New market value = $100 million + $15 million
New market value = $115 million

Therefore, the correct answer is (D) $165 million.

If You Have a Portfolio with a Market Value of $100