What is the portfolio beta with 125% of your funds invested in the market portfolio via borrowing 25% of the funds at the risk-free interest rate?
A) 0.25
B) 0.50
C) 0.75
D) 1.00
E) 1.25

Question

Quizplus · Accepted Answer

The portfolio beta is 1.25 because investing 125% of your funds in the market portfolio (which has a beta of 1) results in a portfolio beta of 1.25. This is achieved by borrowing an additional 25% at the risk-free rate and investing the total amount in the market portfolio.

What Is the Portfolio Beta with 125% of Your Funds