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Answer: 1.00
## Explanation Beta (β) is calculated using the formula: \[\beta = \rho \times \frac{\sigma_p}{\sigma_b}\] Where: - \(\rho\) = correlation between portfolio and benchmark returns = 0.8 - \(\sigma_p\) = volatility of portfolio returns = 5% - \(\sigma_b\) = volatility of benchmark returns = 4% Substituting the values: \[\beta = 0.8 \times \frac{5\%}{4\%} = 0.8 \times 1.25 = 1.00\] Therefore, the beta of the portfolio is 1.00, which corresponds to option A. **Key Points:** - Beta measures the sensitivity of a portfolio's returns to benchmark returns - A beta of 1.00 means the portfolio moves in line with the benchmark - The formula combines correlation and relative volatilities to determine systematic risk exposure
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Suppose that the correlation of the return of a portfolio with the return of its benchmark is 0.8, the volatility of the return of the portfolio is 5%, and the volatility of the return of the benchmark is 4%. What is the beta of the portfolio?
A
1.00
B
0.80
C
0.64
D
-1.00
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