Question

You own a four-stock portfolio, described below, with a total value of $500,000.

i) Calculate the portfolio return

ii) Calculate the portfolio beta

iii) In ONE sentence, describe the risk of the portfolio based on your answer for (ii).

One or more of the following formulas may (or may not) be helpful.

Stock	Latest value	Historical return (previous 10 years)	Std dev of returns (annual)	Beta
A	$300,000	6.50%	15.90%	0.90
B	$50,000	8.10%	24.40%	1.30
C	$150,000	-2.20%	31.20%	1.20

Answer 1

Part i)

Portfolio Return is the weighted avg return of securities in that portfolio

Stock	Amount	Weight	Ret	WTd Ret
A	300000	0.60	6.50%	3.90%
B	50000	0.10	8.10%	0.81%
C	150000	0.30	-2.20%	-0.66%
Portfolio Ret Return				4.05%

Part ii)

Portfolio Beta is weighted Avg beta of securities in that portfolio

Security	Amount	Weights	Beta	Wtd Beta
A	$ 3,00,000.00	0.6000	0.90	0.5400
B	$    50,000.00	0.1000	1.30	0.1300
C	$ 1,50,000.00	0.3000	1.20	0.3600
Portfolio Beta				1.0300

Part iii)

Beta Specifies Systematic Risk.Systematic risk specifies the How many times security return will deviate to market changes.

Portfolio Risk is weighted avg risk of individual securities.