You are given the following information about a portfolio you are to manage. For the long term, you are bullish, but you think the market may fall over the next month. $$\begin{array} { l r r }
\text { Portfolio Value } & \$ \quad 1 \text { million } \
\text { Portfolio's Beta } & 0.86 \
\text { Current S\&P500 Value } & 990 \
\text { Anticipated S\&P500 Value } & 915 \

\end{array}$$ If the anticipated market value materializes, what will be your expected loss on the portfolio?
A) 7.58%
B) 6.52%
C) 15.43%
D) 8.57%
E) 6.42%

Question

You are given the following information about a portfolio you are to manage. For the long term, you are bullish, but you think the market may fall over the next month. $$\begin{array} { l r r } 
\text { Portfolio Value } & \$ \quad 1 \text { million } \
\text { Portfolio's Beta } & 0.86 \
\text { Current S\&P500 Value } & 990 \
\text { Anticipated S\&P500 Value } & 915 \

\end{array}$$ If the anticipated market value materializes, what will be your expected loss on the portfolio?
A) 7.58%
B) 6.52%
C) 15.43%
D) 8.57%
E) 6.42%

Quizplus · Accepted Answer

The expected loss on the portfolio can be calculated using the formula: Expected Loss = Portfolio's Beta * (Change in S&P500 Value / Current S&P500 Value). The change in S&P500 Value is 915 - 990 = -75. So, Expected Loss = 0.86 * (-75 / 990) = -0.0652 or -6.52%.

You Are Given the Following Information About a Portfolio You