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Question 72  CAPM, portfolio beta, portfolio risk

Portfolio Details
Stock Expected
Correlation Beta Dollars
A 0.2 0.4 0.12 0.5 40
B 0.3 0.8 1.5 80

What is the beta of the above portfolio?

Question 408  leverage, portfolio beta, portfolio risk, real estate, CAPM

You just bought a house worth $1,000,000. You financed it with an $800,000 mortgage loan and a deposit of $200,000.

You estimate that:

  • The house has a beta of 1;
  • The mortgage loan has a beta of 0.2.

What is the beta of the equity (the $200,000 deposit) that you have in your house?

Also, if the risk free rate is 5% pa and the market portfolio's return is 10% pa, what is the expected return on equity in your house? Ignore taxes, assume that all cash flows (interest payments and rent) were paid and received at the end of the year, and all rates are effective annual rates.

Copyright © 2014 Keith Woodward