Assume your portfolio consists of 50% of a stock with a beta of 0.936 and 50% of a stock with a beta of 0.409. For each 1 dollar of your portfolio, how much SP500 index should you short? (enter number only)
Assume your portfolio consists of 50% of a stock with a beta of 0.936 and 50% of a stock with a beta of 0.409. For each 1 dollar of your portfolio, how much SP500 index should you short? (enter number only)
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Assume your portfolio consists of 50% of a stock with a beta of 0.936
and 50% of a stock with a beta of 0.409. For each 1 dollar of your
portfolio, how much SP500 index should you short? (enter number only)
Expert Solution
Step 1
1) Beta is a measure of Systematic risk of a stock or portfolio. Beta of a portfolio measures change in portfolio with reference change in market Beta. Market Beta is always 1
Ex 1: If portfolio Beta is 2, if market changes 1%, then portfolio changes by 2%
Ex 1: If portfolio Beta is 0.5, if market changes 1%, then portfolio changes by 0.5%
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