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, the expected return on the portfolio and the market?
A) 1.19; 6.57; 6
B) 1.19; 7.14; 6
C) 1.19; 10.14; 9
D) 1.25; 10.5; 6
E) 1.25; 10.5; 9

Question

Quizplus · Accepted Answer

The portfolio beta is calculated as (0.3*0.8) + (0.3*1.1) + (0.2*1.5) + (0.2*1.6) = 1.19. The expected return on the portfolio is 3% + 1.19*6% = 10.14%. The expected return on the market is the riskless rate plus the market risk premium, which is 3% + 6% = 9%.

A Portfolio Contains Four Assets