Question

using examples explain following a)fund beta b)fund standard deviation c) portfolio beta.

Answer 1

a)

A fund is a collection of securities such that the benefits of diversification are enjoyed. Also, also individuals and institutions invest in a fund managed by fund managers.

Beta is the variability of returns of a security or a set of securities relative to the changes in market returns. Here, a fund beta is referred to the variability of returns of the fund relative to the changes in market returns.

Here, the fund beta is calculated to be 0.6 such that for every unit change in market return, the fund changes by 0.6 units

b)

Fund standard deviation is the standard deviation of the fund returns in an absolute sense

c)

Portfolio beta is similar to fund beta, however, a portfolio is for a specific set of institutions or individuals. Similar to fund beta, portfolio beta is the variability of returns of the fund relative to the changes in market returns.