An investor currently has all of his wealth in Treasury bills. He is considering investing one-third of his funds in General Electric, whose beta is 1.30, with the remainder left in Treasury bills. The expected risk-free rate (Treasury bills) is 6 percent and the market risk premium is 8.8 percent. Determine the beta and the expected return on the proposed portfolio.
An investor currently has all of his wealth in Treasury bills. He is considering investing one-third of his funds in General Electric, whose beta is 1.30, with the remainder left in Treasury bills. The expected risk-free rate (Treasury bills) is 6 percent and the market risk premium is 8.8 percent. Determine the beta and the expected return on the proposed portfolio.
Beta:
Beta coefficient shows the systematic risk of the assets. In simple words, the beta coefficient shows the risk of the asset in comparison to the market. The beta of the market is 1. If any asset is more risker than the market, then the beta of such asset is more than 1. Similarly, if any assets is less risker than the market, then the beta of such asset is less than 1.
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