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Your father just learned from his financial advisor that his retirement portfolio has a beta of 1.79.

Question

Your father just learned from his financial advisor that his retirement portfolio has a beta of 1.79. He has

turned to you to explain to him what this means. Specifically, describe what you would expect to happen to the value of his retirement fund if the following were to occur:

a.The value of the market portfolio rises by 10percent.

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b.The value of the market portfolio drops by 10percent.

c.Is your father’s retirement portfolio more or less risky than the market portfolio? Explain.

Answer format: 
a.  If the value of the market portfolio rises by 10%, then the value of your father’s retirement fund should  (decrease or increase) by ______%. (Select one and round the answer to two decimal places.)

b.  If the value of the market portfolio drops by 10%, then the value of your father’s retirement fund should  (increase OR decrease) by ______%. (Select one and round the answer to two decimal places.)

c. Your father’s retirement portfolio is (less OR more)  risky than the market portfolio because your father’s retirement portfolio beta,  it’s systematic risk, is (less OR more) than the market’s portfolio beta.  Select one for each

 
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