Question 4 4 points You own a portfolio half of which is inv

Question 4 (4 points) You own a portfolio half of which is invested in T-bonds and the rest is equally invested in the market portfolio and stock A. Knowing that beta of stock A equal 3, compute beta of you total portfolio 1) 0.89 2) 1.00 3) 1.50 4) 1.70

Solution

Beta of T-bonds=0

Beta of market=1

Weight of T-bonds=0.5

Rest balance=(1-0.5)=0.5 which is invested in:

Market portfolio=(0.5*0.5)=0.25

and Stock A=(0.5*0.5)=0.25

Hence beta of portfolio=Respective betas*Respective weights

=(0*0.5)+(1*0.25)+(3*0.25)

which is equal to

=1.00