Jeanne Lewis is attempting to evaluate two possible portfolios consisting of the same five assets but held in different proportions. She is particularly interested in using beta to compare the risk of the portfoliosand, in thisregard, has gathered the followingdata:

Portfolio Weights

Asset Asset Beta Portfolio A Portfolio B

1 1.30 10% 30%

2 0.70 30% 10%

3 1.25 10% 20%

4 1.10 10% 20%

5 0.90 40% 20%

Total 100% 100%

a. Calculate the betas for portfolios A and B.

b. Compare the risk of each portfolio to the market as well as to each other. Which portfolio is morerisky?

The beta of portfolio A is _______. (Round to three decimalplaces.)

The beta of portfolio B is _______. (Round to three decimalplaces.)

b. Portfolio

B

A

is slightly less risky than the market(average risk), while portfolio

B

A

is more risky than the market. Portfolio

B

A

's return will move more than portfolio

B

A

's for a given increase or decrease in market risk.(Select from thedrop-down menus.)

Portfolio

B

A is the more risky portfolio.(Select from thedrop-down menu.)