Question

You are going to invest $20,000 in a portfolio consisting of assets X, Y, and Z as follows:

Asset X: Annual return-10% Probability-0.50 Beta- 1.2 Proportion- 0.333

Asset Y: Annual Return-8% Probability-0.25 Beta- 1.6 Proportion- 0.333

Asset Z: Annual Return- 16% Probability- 0.25 Beta 2.0 Proportion- 0.333

Given the information, what is the expected annual rate of return of this portfolio? What is the beta of the portfolio in the table (containing X, Y, and Z)?

Answer 1

Expected return	11.33%	10%*0.333+8%*0.333+16%*0.3333
Beta of the portfolio	1.60	1.2*0.333+1.6*0.333+2*0.333