Explore BrainMass

Explore BrainMass

    Finding the Standard Deviation of a Portfolio Using Beta

    Not what you're looking for? Search our solutions OR ask your own Custom question.

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    I need help with the following:

    Suppose that the expected return on the market is 12% and the risk free rate is 7%. The standard deviation of the return on the market is 15%. One investor creates a portfolio on the efficient frontier with an expected return of 10% and another creates a portfolio on the efficient frontier with an expected return of 20%. What is the standard deviation of the return of the two portfolios?

    © BrainMass Inc. brainmass.com March 5, 2021, 12:05 am ad1c9bdddf
    https://brainmass.com/business/finance/finding-the-standard-deviation-of-a-portfolio-using-beta-480899

    Solution Preview

    The Capital Asset Pricing Model tells us that:

    Required return on a security (or portfolio) = Risk-free rate + (Beta*(Expected return on the market - risk-free rate))
    Furthermore, the Beta on the market is always 1.0 and the beta is the ratio of the standard deviation of a security or portfolio to that of the market. (Thus, Beta = standard deviation of security or portfolio / Standard deviation of ...

    Solution Summary

    This solution illustrates how to find a portfolio's standard deviation using the Capital Asset Pricing Model,.

    $2.49

    ADVERTISEMENT