navya (STUDENT) (1762 Points)
06 December 2013MR. 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 ?
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
Juzer
(ARTICLE )
(36 Points)
Replied 06 December 2013
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.
prajwali
(student)
(29 Points)
Replied 06 December 2013
anishthukral
(articleship)
(23 Points)
Replied 06 December 2013
CA Ashish Pathak
(Employed at Cipla Ltd.)
(2779 Points)
Replied 07 December 2013
RAHUL KUMAR SHARMA
(SENIOR AUDIT ASSISTANT)
(82 Points)
Replied 07 December 2013
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
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
CAclubindia
