1. Which of the following comes closest to the beta of a portfolio that has 55%
ID: 2758125 • Letter: 1
Question
1. Which of the following comes closest to the beta of a portfolio that has 55% of the total invested in the risk free rate of interest and 45% of the total invested in the market portfolio?
a. 1.00
b. 0.45
c. 0.55
d. 0.50
e. Need more information to answer the question.
2. The return on shares of Mass Company are predicted under the following equally likely states of nature:
Recession
Normal +
Boom +
What is the expected return of Mass?
a. 0.01
b. 0.02
c. 0.03
d. 0.04
e. 0.05
3. The return on shares of Orange Company are predicted under the following equally likely states of nature:
Recession -0.11
Normal +0.05
Boom +0.24
What is the standard deviation of Orange?
a. 0.14
b. 0.22
c. 0.26
d. 0.32
e. 0.45
Explanation / Answer
1.
Correct option is a
1.00
Beta of a portfolio is related to market portfolio and beta of market portfolio is 1.00 so beta is 1.00
2.
Correct option is b
.02
Expected return on portfolio =(-.25+.11+.20)/3
=.02
3.
Correct option is a.
0.14
Expected return on portfolio=(-.11+.05+.24)/3
=.06
Variance of portfolio=[(.06+.11)2+(.06-.05)2+(.06-.24)2] /3
=.020467
Standard deviation=(.020467)^1/2
=.14306
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