CFA Practice Question
The beta of a portfolio that has 49% of the wealth in the market portfolio and the rest in the risk-free asset has a beta of ______.
A. There is insufficient information to calculate this figure.
B. 0.51
C. 0.49
Explanation: If your wealth is divided between the market portfolio and the risk-free asset, the portfolio beta equals the fraction invested in the market portfolio. You can prove this easily using the CAPM.
User Contributed Comments 5
| User | Comment |
|---|---|
| kamal3r | Interesting because the market portfolio has a beta of 1 therefore the weighted beta is 0.49 |
| rwales | 0.49=49%*1(beta of market portfolio) + 51*0 (returns of risk free asset do not change!) |
| rrichmondo | Great question - I forgot the market has a beta of 1 by definition - doh :) |
| mekc | must remember to read all the words in the question.... skipped the word market... |
| Ifi2703 | Remember that the beta is all about the risk relative to the market. If 51% of the portfolio is, essentially, risk-free logic suggests that the risky part of the portfolio will be 49%. |