Response to the following :
Referring to Problem, assume you have a portfolio with $20 000 invested in each of investment A, B and C. What is your portfolio beta?
Problem :
Assume the betas for securities A, B and C are as shown here.
Security Beta
A 1.40
B 0.80
C -0.90
a. Calculate the change in return for each security if the market experiences an increase in its rate of return of 13.2% over the next period.
b. Calculate the change in return for each security if the market experiences a decrease in its rate of return of 10.8% over the next period.
c. Rank and discuss the relative risk of each security on the basis of your findings. Which security might perform best during an economic downturn? Explain.