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I've been a bit stuck with this question: "If a portfolio P had a predicted beta=1.05 wrt to an index, and that index later underperformed Treasury Bills by 5%, what would be the expected return of the portfolio P?".

I think the answer is just -0.0525 (essentialy 1.05*(-0.05)), but I'd like to check.

  • Sorry, had to get rid of the last comment. Yeah the portfolio would be expected to under-perform by 5.25%. T-Bills don't have a 0% return however so find the T-Bill return and then take the T-Bill return (.45%) and take 5.25% off of it. (.0045 - (.0045*.0525)) = .0043 or (1-.0525)(.0045) = .0043 Had a brain fart on the first try. – Ross Sep 17 '15 at 14:58
  • @Ross, can you put that in an answer instead of a comment? – JohnFx Sep 21 '18 at 23:29
  • Ross last seen Jan ‘17 – JoeTaxpayer Sep 22 '18 at 2:03

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