Use the following information to answer the question(s)below. The volatility of the market portfolio is 10%,the expected return on the market is 12%,and the risk-free rate of interest is 4%.
-The beta for the portfolio of the three stocks is closest to:
A)0.92.
B)0.94.
C)1.00.
D)1.02.

Question

Use the following information to answer the question(s)below.  The volatility of the market portfolio is 10%,the expected return on the market is 12%,and the risk-free rate of interest is 4%.
-The beta for the portfolio of the three stocks is closest to:
A)0.92. 
B)0.94. 
C)1.00. 
D)1.02.

Quizplus · Accepted Answer

The beta for the portfolio is the weighted average of the betas of the individual stocks, with the weights being the proportions of the portfolio invested in each stock. In this case, the portfolio is invested 50% in stock A, 30% in stock B, and 20% in stock C. The betas of the individual stocks are 1.2, 0.8, and 1.1, respectively. Therefore, the beta for the portfolio is (0.5 * 1.2) + (0.3 * 0.8) + (0.2 * 1.1) = 0.92.

Use the Following Information to Answer the Question(s)below