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Beta of the portfolio is?

navya (STUDENT) (1762 Points)

06 December 2013

MR. DEBASHIS has formed a portfolio and the characteristics of his portfolio are given below:

Security	Sontex Ltd.	Polar Ltd.	Treasury Bill	Index Fund
Weight	0.07	0.25	0.25	0.43
Beta (β)	1.72	0.89	?	?

Beta of his portfolio is ?

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12 Replies

Jeetendra Goyal (Student CA Final ) (175 Points)
Replied 06 December 2013

pls tell me beta of index fund,, then only possible to calculate beta of portfolio

Jeetendra Goyal (Student CA Final ) (175 Points)
Replied 06 December 2013

in which exam???

Juzer (ARTICLE ) (36 Points)
Replied 06 December 2013

Beta of of index fund will be 1 as it will move with the market....so nw u will be able to solve it as only one variable is missing.

Ashok (Industry) (416 Points)
Replied 06 December 2013

Beta of index fund is 1. Beta of a treasury bill is 0. Beta of the portfolio is the weighted average of the components. That is 0.07 x 1.72 + 0.28 x 0.89 + 0.25 x 0 + 0.43 x 1 = 0.7996.

Treasury bill doesn't move with the equity market, therefore it's beta is 0. As rightly said index fund is the market itself therefore its beta is 1.

Hope this clarifies.

navya (STUDENT) (1762 Points)
Replied 06 December 2013

CMA Final June 2013 Paper 11

prajwali (student) (29 Points)
Replied 06 December 2013

Beta for treasury bill is always 0..nnindex fund is nothing but d market so having beta 1.now you can easily find portfolio beta..

1 Like

anishthukral (articleship) (23 Points)
Replied 06 December 2013

Treasury bills have no beta as these bills are issued by govt.

CA Ashish Pathak (Employed at Cipla Ltd.) (2779 Points)
Replied 07 December 2013

Agreed with above reply by Mr.Ashok. Actually beta is the risk of security in proportion to market risk. Treasury bills are risk free securities hence it's beta is 0.

RAHUL KUMAR SHARMA (SENIOR AUDIT ASSISTANT) (82 Points)
Replied 07 December 2013

Treasury bills are zero beta stocks as these are issued by Government. However beta of index fund is equal to beta of market i.e 1. So calculate accordingly.

Ashok (Industry) (416 Points)
Replied 07 December 2013

@ rahul - T bills are not zero beta stocks. they are debt instruments, not equity. Hence it's beta is zero. Also they are not zero beta because they are issued by govt. Even corporate debt also has zero beta.

AKASH HAMIRBASIA (student) (35 Points)
Replied 13 December 2013

Beta is a measure of systematic risk. As the treasury bill is a risk free security and it also remain constant with the movement of market so it has zero risk, accordingly Beta of T bill is '0'

vikas verma (Chartered Accountant) (282 Points)
Replied 16 December 2013

Beta is a measure of non diverisfiable risk, also known as the residual risk , which cannot be diversifed even if we collect two negatively correlated securities in our portfolio. It can also be described as the senstivity of a security with respect to market

Treasury Bills: These are risk free securities which do not have any sensitivity to market changes. Hence the beta is 0

Also, the market related security will be perfectly in tandem with the market, or precisely the sensitivity shall be 1. Therefore , beta shall be 1