Answer to Question #285290 in Finance for Emma

Question

• Suppose investor I chooses his “market portfolio” to consist of 75% in asset A and 25% in asset B, whereas investor J chooses a different “market portfolio” with 50% in asset A and 50% in asset B. Given these facts, what beta will each investor calculate for asset A?
• Given your answer to part a, which of the following statement is true and why? 

i. Investor I will require a higher rate of return on asset A than will investor J. 

ii. They both require the same return on asset A. 

iii. Investor J will require a higher rate of return on asset A than will investor I.

• Compute the zero-beta portfolios and the equations for the security market line for each investor where the zero-beta portfolio is the minimum variance portfolio which has zero covariance with the index portfolio.

Answer 1

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