Table 8.3
Consider the following two securities X and Y.
-Using the data from Table 8.3, what is the portfolio expected return and the portfolio beta if you invest 35 percent in X, 45 percent in Y, and 20 percent in the risk-free asset?
A) 12.5%, 0.975
B) 12.5%, 1.975
C) 15.0%, 0.975
D) 15.0%, 1.975

Question

Table 8.3
Consider the following two securities X and Y. 
-Using the data from Table 8.3, what is the portfolio expected return and the portfolio beta if you invest 35 percent in X, 45 percent in Y, and 20 percent in the risk-free asset?
A) 12.5%, 0.975 
B) 12.5%, 1.975 
C) 15.0%, 0.975 
D) 15.0%, 1.975

Quizplus · Accepted Answer

The portfolio expected return is calculated by weighting the returns of each asset by the percentage invested in each. The portfolio beta is calculated similarly, except the risk-free asset has a beta of 0 (since it's risk-free and beta measures market risk). Given that 20% is invested in a risk-free asset, it contributes 0 to the portfolio beta.

Table 8.3 Consider the Following Two Securities X and Y