You are given the following information concerning three portfolios, the market portfolio, and the risk-free asset: Portfolio RP σP βP X 12.0 % 33 % 1.95 Y 11.0 28 1.25 Z 7.3 18 0.60 Market 11.4 23 1.00 Risk-free 6.8 0 0 Assume that the correlation of returns on Portfolio Y to returns on the market is 0.84. What is the percentage of Portfolio Y's return that is driven by the market?

Question

Julien Friedman

Business

25 November, 02:26

You are given the following information concerning three portfolios, the market portfolio, and the risk-free asset: Portfolio RP σP βP X 12.0 % 33 % 1.95 Y 11.0 28 1.25 Z 7.3 18 0.60 Market 11.4 23 1.00 Risk-free 6.8 0 0 Assume that the correlation of returns on Portfolio Y to returns on the market is 0.84. What is the percentage of Portfolio Y's return that is driven by the market?

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Answers (1)

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Yadiel Francis · Answer 1

0.7056 or 70.56%

Explanation:

As there is three portfolios, the market portfolio and the risk free asset are given

Plus the correlation of return on portfolio Y to return on the market is 0.84

So by considering the given information in the question, the percentage of portfolio Y return is

= Correlation of return on portfolio Y to return on the market ^ 2

= 0.84 ^ 2

= 0.7056 or 70.56%