If equity A's beta on the inflation factor is 1.2,equity B's is 2.6 and equity C's is 3,a portfolio that has weights of 0.5 on equity A,0.3 on equity B and 0.2 on equity C has a factor beta of _____ on this factor.

Question

Quizplus · Accepted Answer

The formula to calculate the factor beta of a portfolio is:

Factor beta of portfolio = (weight of equity A x beta of equity A) + (weight of equity B x beta of equity B) + (weight of equity C x beta of equity C)

Substituting the given values:

Factor beta of portfolio = (0.5 x 1.2) + (0.3 x 2.6) + (0.2 x 3)

Factor beta of portfolio = 0.6 + 0.78 + 0.6

Factor beta of portfolio = 1.98

Therefore, the answer is B.

If Equity A's Beta on the Inflation Factor Is 1