Financial Risk Manager Part 1

Explanation

The portfolio beta is calculated as the weighted average of the individual asset betas:

• Asset 1: Beta = 1.3, Weight = 0.3
• Asset 2: Beta = 0.97, Weight = 0.23
• Asset 3: Beta = 1.7, Weight = 0.37
• Asset 4: Beta = 1.4, Weight = 0.1

Calculation: Portfolio Beta = (1.3 × 0.3) + (0.97 × 0.23) + (1.7 × 0.37) + (1.4 × 0.1) = 0.39 + 0.2231 + 0.629 + 0.14 = 1.3821 ≈ 1.4

Important Note: The market risk-free rate of 5% is irrelevant for calculating portfolio beta. Beta measures systematic risk relative to the market, and its calculation depends only on the individual asset betas and their portfolio weights, not on risk-free rates.