What is the portfolio beta if 25% of your funds are invested in the
market portfolio, 25% in an asset with twice as much risk as the
market portfolio and the remainder in a risk free asset?(hint: B for
the market portfolio=1, B for the risk-free asset=0)

Dear pheifer-ga,

Good day!

The Portfolio Beta concept is used in the context of general equities.
It is defined as the weighted sum of the individual asset betas,
according to the proportions of the Investments in the portfolio.

In our case, 25% of funds are invested in the market portfolio, 25% in
an asset with twice as much risk as the market portfolio and the
remainder (50%) in a risk free asset.

Now, 
beta for the risk-free asset = 0
beta for the market portfolio = 1
beta for the risky asset = 2 (twice as much as that for the market
portfolio)

Thus, the portfolio beta 
= (0.25 * 1) + (0.25 * 2) + (0.50 * 0)
= 0.25 + 0.50 + 0.00
= 0.75 (Answer)

Portfolio beta describes relative volatility of an individual
securities portfolio, taken as a whole, as measured by the individual
stock betas of the securities making it up. A beta of 1.05 relative to
the S&P 500 implies that if the S&P`s excess Return increases by 10%
the portfolio is expected to increase by 10.5%.

Hope this answer is satisfacotry :)

Thanks & regards,
reeteshv-ga

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