Introduction to Corporate Finance

PART 2: VALUATION, RISK AND RETURN

example

Calculate the beta of the portfolio described in the

following table.

Share Beta $ invested

Telstra 1.00 $ 2,500

Billabong 1.33 $ 5,000

Woolworths 0.67 $ 2,500

Cochlear 1.67 $10,000

The portfolio weights here are the same as in

the example on page 237, so the portfolio beta

equals:

βp = (0.125)(1.00) + (0.25)(1.33) + (0.125)(0.67)

+ (0.50)(1.67) = 1.38

5 How can the weight given to a particular share in a portfolio exceed 100%?

6 Why is the standard deviation of a portfolio typically less than the weighted average of the

standard deviations of the assets in the portfolio, while a portfolio’s beta equals the weighted

average of the betas of the shares in the portfolio?

CONCEPT REVIEW QUESTIONS 7-2

> >

BETAS OF MARKETS AROUND THE WORLD

Source: Marc H. Goedhart and Peter Haden, ‘Are Emerging Markets as Risky as You Think?’ McKinsey on Finance, Spring 2003

Do companies use the same

methods to assess the risk

of foreign and domestic

investments?

Beta

World, 1.00

Europe, 0.93

USA, 0.84

Jordan, 0.06

Colombia, 0.22

Pakistan, 0.37

India, 0.43

Chile, 0.50

Egypt, 0.52

Argentina, 0.55

Taiwan, 0.79

Venezuela, 0.79

Indonesia, 0.82

Malaysia, 0.87

Philippines, 0.94

China, 0.97

South Africa, 0.98

Mexico, 1.00

Turkey, 1.04

South Korea, 1.13

Thailand, 1.20

Brazil, 1.30

Hungary, 1.40

Poland, 1.47

Russia, 2.28

0.00 0.50 1.00 1.50 2.00 2.50

Betas of markets around the world

thinking cap
question