Question

Please explain and show work:

What is Nico’s portfolio beta if he invests an equal amount in asset X with a beta of 0.50, asset Y with a beta of 1.50, the risk-free asset , and the market portfolio?

Can this be solved using a TI 83+?

Answer 1

You can solve it with a simple calculator as well. This question does not require to use the financial calculator (or even a calculator) but just needs to know the concept.

For a risk free asset, beta = 0

For market portfolio, beta = 1

Now, beta of a portfolio is weighted average of beta of constituents. For this particular question, equal amount is invested in each asset and hence the weights are equal, so we need to compute the simple average of all beta to compute portfolio beta.

Portfolio beta = (0.50 + 1.50 + 0 + 1)/4 = 0.50