AAFM GLO_CWM_LVL_1 Exam - Topic 3 Question 87 Discussion

Actual exam question for AAFM's GLO_CWM_LVL_1 exam

Question #: 87
Topic #: 3

Portfolio A had a return of 12% in the previous year, while the market had an average return of 10%. The standard deviation of the portfolio was calculated to be 20%, while the standard deviation of the market was 15% over the same time period. If the correlation between the portfolio and the market is 0.8, what is the Beta of the portfolio A?

A0.94

B1.07

C1.31

D1.91

Show Suggested Answer

Suggested Answer: D

by Wenona at Aug 22, 2024, 01:45 PM

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Paola

6 months ago

Not sure about that calculation, feels off to me.

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Micah

7 months ago

Wait, how can the Beta be over 1 if the return is only slightly better than the market?

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Margart

7 months ago

Seems high, but I agree with 1.07 too.

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Rosalind

7 months ago

I think it’s definitely around 1.07.

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Stefania

7 months ago

Beta is calculated using the formula: Beta = (Correlation * StdDev of Portfolio) / StdDev of Market.

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Kiley

8 months ago

I think the Beta should be less than 1 since the portfolio's return is only slightly higher than the market's. But I can't recall the exact calculation steps.

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Virgina

8 months ago

I feel like I should be able to do this, but I keep mixing up the formulas for Beta and Alpha. I hope I remember the right one during the exam!

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Kerrie

8 months ago

I think I practiced a similar question where we had to calculate Beta using returns and standard deviations. I might be able to use the correlation and standard deviations to find it.

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Shawnda

8 months ago

I remember that Beta is calculated using the formula Beta = (Covariance of the portfolio and market) / (Variance of the market). But I'm not sure how to find the covariance here.

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Micheline

8 months ago

This is a tricky one. I'm not sure I fully understand how to apply the CAPM formula in this context. I might need to ask the professor for a quick clarification before I start working on it.

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Elbert

8 months ago

Hmm, I'm a bit unsure about this one. I know we need to use the CAPM formula, but I'm not confident I can remember all the details correctly under exam pressure. Maybe I should review the key concepts quickly before attempting to solve it.

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Lavonda

8 months ago

This looks like a straightforward application of the Capital Asset Pricing Model (CAPM) formula to calculate the beta of the portfolio. I think I can work through this step-by-step.

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Carol

8 months ago

Okay, I think I can do this. The key is to plug in the given values for the portfolio return, market return, and standard deviations, as well as the correlation coefficient, into the beta formula. I'll give it a try.

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Dana

8 months ago

I remember practicing a question similar to this, and I think the answer was definitely not a relative URL.

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Annelle

1 year ago

Correlation of 0.8? That's a pretty strong relationship between the portfolio and the market. I wonder how that factors in.

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Mertie

12 months ago

I'm leaning towards the Beta of the portfolio A being 1.31.

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Levi

12 months ago

C) 1.31

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Rolf

12 months ago

I believe the Beta of the portfolio A is 1.07.

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Marya

12 months ago

B) 1.07

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Laurel

12 months ago

I think the Beta of the portfolio A is 0.94.

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Lucia

1 year ago

A) 0.94

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Vallie

1 year ago

Woah, this is really testing my finance chops. I better not mess this one up!

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Lore

1 year ago

B) 1.07

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Catarina

1 year ago

I think it's A) 0.94

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Lavonne

1 year ago

A) 0.94

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Lucy

1 year ago

Haha, this question is like a math puzzle. I bet the answer is hidden in those standard deviation and correlation numbers.

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Laine

1 year ago

Okay, I remember learning about beta and how it relates to market risk. Time to put that knowledge to the test!

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Carey

1 year ago

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Shonda

1 year ago

That makes sense. So, the Beta of portfolio A would be 0.8 * (20% / 15%) = 1.07. The answer is B.

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Cassie

1 year ago

I agree. The correlation between the portfolio and the market is 0.8, so we can use the formula Beta = correlation * (standard deviation of portfolio / standard deviation of market).

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