Question

"Your father just learned from his financial advisor that his retirement portfolio has a beta of 1.85. He has turned to you to explain to him what this means. ​ Specifically, describe what you would expect to happen to the value of his retirement fund if the following were to​ occur: a. The value of the market portfolio rises by 9 percent. b. The value of the market portfolio drops by 9 percent.c. Is your​ father's retirement portfolio more or less risky than the market​ portfolio? Explain."a.  If the value of the market portfolio rises by 8​%, then the value of your​ father's retirement fund should decrease/increase by _______ ​%. ​(Select from the​ drop-down menu and round the answer to two decimal​places.)b.  If the value of the market portfolio drops by 8​%, then the value of your​ father's retirement fund should decrease/increase by _______ ​%.​(Select from the​drop-down menu and round the answer to two decimal​ places.)c. Your​ father's retirement portfolio is less/more risky than the market portfolio because your​ father's retirement portfolio​ beta, ​ it's systematic​ risk, is less/greater than the​ market's portfolio beta.  ​(Select from the​ drop-down menus.)

Answer 1

Consider the following calculations and explanations

Step-by-step explanation:

For every 1 % change in market portfolio, the retirement portfolio would change by 1.75% .

a. If the value of the market portfolio rises by 8​%, then the value of your​ father's retirement fund should increase by 8%*1.75% = 14%

b. If the value of the market portfolio drops by 8​%, then the value of your​ father's retirement fund should decrease by 14%

c. Your​ father's retirement portfolio is more risky than the market portfolio because your​ father's retirement portfolio​ beta, ​ it's systematic​ risk, is greater than the​ market's portfolio beta. Beta of the portfolio generally denotes the volatitlity in comparision to the market. If the beta is more , it is more volatile and risky.