Consider a Portfolio Made Up of Two Risky Assets and a Risk-Free

question 111

Multiple Choice

Consider a portfolio made up of two risky assets and a risk-free asset. You invest 40% in asset A with a beta of 1.25 and 40% in asset B with a beta of 1.15. What is the beta of the portfolio?

• A) 0.84
• B) 0.96
• C) 1.03
• D) 1.12
• E) 1.20

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Definitions:

SST

A measure of the total variation in a dataset that is the sum of squares total, often used in the context of regression analysis.

SSE

The overall sum of errors squared, highlighting the divergence between a model's predictions and real-world data observations.

Least Squares Estimate

A method in statistics for estimating the best-fitting line to a set of points by minimizing the sum of the squares of the differences between the observed values and the values provided by the model.

Slope

This term describes the rate at which a line ascends or descends, calculated as the change in the y-axis divided by the change in the x-axis for any two points on the line.