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Jason Jackson is attempting to evaluate two possible portfolios consisting of the same five assets but held in different proportions. He is particularly interested in using beta to compare the risk of the portfolios and, in this regard, has gathered the following data: 8. a. Calculate the betas for portfolios A and B. b. Compare the risk of each portfolio to the market as well as to each other. Which portfolio is more risky? Review Only Click the icon to see the Worked Solution. a. The beta of portfolio A is (Round to three decimal places.) The beta of portfolio B is (Round to three decimal places.) b. Portfolio (1). .is slightly less risky than the market (average risk), while portfolio (2) more risky than the market. Portfolio (3). given increase or decrease in market risk. (Select from the drop-down menus.) L's return will move more than portfolio (4)- L's for a Portfolio (5). .is the more risky portfolio. (Select from the drop-down menu.) 8: Data Table (Click on the icon here in order to copy its contents of the data table below into a spreadsheet.) Portfolio Weights Asset Asset Beta Portfolio A Portfolio B 1 1.26 25% 31% 2 0.69 35% 14% 3 1.28 13% 22% 4 1.12 5% 20% 5 0.89 22% 13% Total 100% 100% (1) O B O A (4) O B O A (2) O B (3) O B (5) O B A A A

Jason Jackson is attempting to evaluate two possible portfolios consisting of the same five assets but held in different proportions. He is particularly interested in using beta to compare the risk of the portfolios and, in this regard, has gathered the following data: 8. a. Calculate the betas for portfolios A and B. b. Compare the risk of each portfolio to the market as well as to each other. Which portfolio is more risky? Review Only Click the icon to see the Worked Solution. a. The beta of portfolio A is (Round to three decimal places.) The beta of portfolio B is (Round to three decimal places.) b. Portfolio (1). .is slightly less risky than the market (average risk), while portfolio (2) more risky than the market. Portfolio (3). given increase or decrease in market risk. (Select from the drop-down menus.) L's return will move more than portfolio (4)- L's for a Portfolio (5). .is the more risky portfolio. (Select from the drop-down menu.) 8: Data Table (Click on the icon here in order to copy its contents of the data table below into a spreadsheet.) Portfolio Weights Asset Asset Beta Portfolio A Portfolio B 1 1.26 25% 31% 2 0.69 35% 14% 3 1.28 13% 22% 4 1.12 5% 20% 5 0.89 22% 13% Total 100% 100% (1) O B O A (4) O B O A (2) O B (3) O B (5) O B A A A

Essentials Of Investments
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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**Portfolio Risk Evaluation Exercise** **Objective:** Jason Jackson evaluates two potential portfolios, both composed of five identical assets, but in varied proportions. He aims to use beta to compare their risks. **Tasks:** 1. Calculate the betas for portfolios A and B. 2. Compare the risk of each portfolio to the market and to one another. Determine which portfolio is riskier. **Instructions:** - For beta calculations, round to three decimal places. **Questions:** a. Determine the beta values for portfolios: - The beta of Portfolio A: __________. - The beta of Portfolio B: __________. b. Comparative Risk Analysis: - Portfolio (1) ___ is less risky than the market, whereas portfolio (2) ___ is riskier. - Portfolio (3) ___ will exhibit more return movement than Portfolio (4) ___ for market risk changes. - Portfolio (5) ___ is identified as the riskier portfolio. **Data Table Overview:** The table below provides essential information about asset betas and their respective portfolio weights for calculation purposes. | Asset | Asset Beta | Portfolio A | Portfolio B | |-------|------------|-------------|-------------| | 1 | 1.26 | 25% | 31% | | 2 | 0.69 | 35% | 14% | | 3 | 1.28 | 13% | 22% | | 4 | 1.12 | 5% | 20% | | 5 | 0.89 | 22% | 13% | | **Total** | | **100%** | **100%** | - Calculate and compare weighted averages to determine the portfolio betas. **Instructions for Completing the Exercise:** - Utilize the data table to determine the weighted beta for each portfolio based on given weights. - Select answers for comparative risks from provided options (1-5). **Notes:** The beta of a portfolio reflects its sensitivity to market movements—values greater than 1 indicate higher risk than the market, while values less than 1 suggest lower risk.
Transcribed Image Text:**Portfolio Risk Evaluation Exercise** **Objective:** Jason Jackson evaluates two potential portfolios, both composed of five identical assets, but in varied proportions. He aims to use beta to compare their risks. **Tasks:** 1. Calculate the betas for portfolios A and B. 2. Compare the risk of each portfolio to the market and to one another. Determine which portfolio is riskier. **Instructions:** - For beta calculations, round to three decimal places. **Questions:** a. Determine the beta values for portfolios: - The beta of Portfolio A: __________. - The beta of Portfolio B: __________. b. Comparative Risk Analysis: - Portfolio (1) ___ is less risky than the market, whereas portfolio (2) ___ is riskier. - Portfolio (3) ___ will exhibit more return movement than Portfolio (4) ___ for market risk changes. - Portfolio (5) ___ is identified as the riskier portfolio. **Data Table Overview:** The table below provides essential information about asset betas and their respective portfolio weights for calculation purposes. | Asset | Asset Beta | Portfolio A | Portfolio B | |-------|------------|-------------|-------------| | 1 | 1.26 | 25% | 31% | | 2 | 0.69 | 35% | 14% | | 3 | 1.28 | 13% | 22% | | 4 | 1.12 | 5% | 20% | | 5 | 0.89 | 22% | 13% | | **Total** | | **100%** | **100%** | - Calculate and compare weighted averages to determine the portfolio betas. **Instructions for Completing the Exercise:** - Utilize the data table to determine the weighted beta for each portfolio based on given weights. - Select answers for comparative risks from provided options (1-5). **Notes:** The beta of a portfolio reflects its sensitivity to market movements—values greater than 1 indicate higher risk than the market, while values less than 1 suggest lower risk.
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