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Why are beta needed to construct the portfolio

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Reference no: EM132386303

Portfolio information are as follows. there are three funds in the basket. The beta's there are estimated by the S$P 500 index which are B1=1.28, B2=0.93, and B3=0.85.

  1. Why are beta's needed to construct the portfolio?
  2. Risk free rate is 2%. what are the required returns for fund 1 and fund 2 if market rate of return is 12%
  3. can it be possible to have a risk-free (zero beta) portfolio if you combine asset 1 and asset 2? If the answer is yes, what is the required return for the portfolio? If the transaction cost for the portfolio requires 0.5% commission would you do it?

Reference no: EM132386303

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