A trader is having in its portfolio shares worth 170 lakhs at current price and cash 30 lakhs. The beta of share portfolio is 1.6. Evaluate: (i)…

(i) Current Portfolio Beta Current Beta for share portfolio = 1.6Beta for cash = 0Current portfolio beta = (170/200 x 1.6) + (0 x 30/200) = 1.36 (ii) Portfolio beta after 3 months: Beta for portfolio of shares = Change in value of portfolio of share / Change in value of market portfolio (Index) 1.6 = 0.032 / Change in value of market portfolio (Index) Change in value of market portfolio (Index) = (0.032 / 1.6) x 100 = 2% Position taken on 100 lakh Nifty futures : LongValue of index after 3 months = 200 lakh x (1.00 - 0.02) = 196 lakhMark-to-market paid = 4 lakhCash balance after payment of mark-to-market = 26 lakh.Value of portfolio after 3 months = 170 lakh x (1 - 0.032) +26 lakh = 190.56 lakh Change in value of portfolio = (200 lakh - 190.56 lakh) / 200 lakh = 4.72% Portfolio beta = 0.0472/0.02 = 2.36