A Portfolio Contains Four Assets

question 85

Multiple Choice

A portfolio contains four assets. Asset 1 has a beta of .8 and comprises 30% of the portfolio. Asset 2 has a beta of 1.1 and comprises 30% of the portfolio. Asset 3 has a beta of 1.5 and comprises 20% of the portfolio. Asset 4 has a beta of 1.6 and comprises the remaining 20% of the portfolio. If the riskless rate is expected to be 3% and the market risk premium is 6%,what is the beta of the portfolio?

• A) 0.80
• B) 1.10
• C) 1.19
• D) 1.25
• E) 1.40

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Definitions:

Negative Correlation

A relationship between two variables in which one variable increases as the other decreases, and vice versa.

Systematic Correlation

The degree to which the returns of different investments move together due to changes in the overall market.

Expected Return

The average return an investment is projected to generate based on historical data or probability-weighted scenarios.

Portfolio

A collection of financial investments like stocks, bonds, commodities, cash, and cash equivalents.