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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Beta of the portfolio is?
Replies (12)
pls tell me beta of index fund,, then only possible to calculate beta of portfolio
in which exam???
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.
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.
CMA Final June 2013 Paper 11
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..
Treasury bills have no beta as these bills are issued by govt.
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.
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.
@ 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.
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'
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
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