You are attempting to evaluate two possible portfolios, which consist of the same five assets held in different proportions. You are particularly interested in using beta to compare the risks of the portfolios, so he has gathered the data shown in the following table.Calculate the betas for portfolios X and Y.Compare the risks of these portfolios to the market as well as to each other. Which portfolio is more risky? Portfolio weightsAssetAsset betaPortfolio XPortfolio Y2.520%10%0.8103031.2301040.9103051.63020Totals100%100%

Beta value is the ratio of market risk to stock’s systematic risk.

Answered: Portfolio weights Asset Asset beta…

Portfolio weights Asset Asset beta Portfolio X Portfolio Y 2.5 20% 10% 0.8 10 30 3 1.2 30 10 4 0.9 10 30 5 1.6 30 20 Totals 100% 100%

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter8: Risk And Rates Of Return

Section: Chapter Questions

Problem 9PROB

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Concept explainers

Portfolio Management

Portfolio management is the process by which an investor decides that how the person will invest in a variety of assets in order to get a desired return in the future. A portfolio means a pool of assets that includes securities, bonds, and other investment instruments which helps in risk minimization of the money that has been invested. In other words, it can be said that a portfolio means a combination of assets in which an investor decides to invest their money in order to get a lump sum return in the future or even a series of cash flow that the person is expecting at the end of their job life.

Question

You are attempting to evaluate two possible portfolios, which consist of the same five assets held in different proportions. You are particularly interested in using beta to compare the risks of the portfolios, so he has gathered the data shown in the following table.
Calculate the betas for portfolios X and Y.
Compare the risks of these portfolios to the market as well as to each other. Which portfolio is more risky?

Portfolio weights
Asset
Asset beta
Portfolio X
Portfolio Y
2.5
20%
10%
0.8
10
30
3
1.2
30
10
4
0.9
10
30
5
1.6
30
20
Totals
100%
100%

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