Question: Referring to Problem I, using the portfolio beta, what would you expect the value of your portfolio to be if the market rallied 20%? Declined 20%?
Problem I: Referring to Problem II, assume you have a portfolio with $20,000 invested in each of investments A, B, and C. What is your portfolio beta?
Problem II: Assume the betas for securities A, B, and C are as shown here.
Security Beta
A 1.4
B 0.8
C -0.9
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.