Question

Assume the single-factor model applies and a portfolio exists such that 65 percent of the funds are invested in risky Security Q and the rest in the risk-free asset. Security Q has a beta of 1.5. The portfolio has a beta of:________

a. 1.500.
b. .925.
c. .650.
d. .975.
e. 1.000.

Answer 1

d. .975.

Step-by-step explanation:

The computation of the portfolio beta is shown below;

Portfolio beta = Respective betas × Respective weights

= (0.65 × 1.5) + (0.35 × 0)

= 0.975 + 0

= 0.975

Hence, the portfolio has a beta of 0.975

We simply applied the above formula so that the correct beta could come