Which one of the following has the lowest total risk?
Portfolio expected return equals 4.50%. This can be calculated by taking the weighted average of each asset’s expected return. Example: A is expected to return 5% while B will return 3% and the asset with no risk has a return expected of 0%. Therefore, the portfolio’s expected return is (0.3 x 5%) + (0.3 x 3%) + (0.4 x 0%) = 4.50%.
This portfolio’s beta value is 1.15. This can be calculated by taking the weighted average of each asset’s beta value: A has a beta value of 1, B has a beta value of 1.5, and the risk-free asset has a beta value of 0: therefore, (0.3 x 1) + (0.3 x 1.5) + (0