# zero beta portfolio

I understand that conceptually, a zero beta portfolio is one that should have no correlation with the market portfolio. What else does one need to know / should one know beyond that with respect to a zero beta portfolio? It seems one can simply substitute that in for the risk free rate in the CAPM equation, but I have a few questions on point (Schweser study notes are not helpful to me on this one):

1. What does a zero beta portfolio have to do with making an assumption about being able to borrow and lend at the same rates?

2. Schweser: “As long as the expected return on the zero beta portfolio is assumed to be greater then the risk free lending rate, the resulting security market line will have a smaller risk premium (ie a flatter slope)” Huh?

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1) Not sure what the context is here
2) The zero beta portfolio can certainly contain risk, just not systematic equity risk. That means it must have a higher expected return than risk-free. That means you could invest your portfolio in some combination of that portfolio and the market. If the return of the zero beta portfolio > rf then the line from that point on the x-axis tangent to the efficient frontier must have a smaller slope than the CML because the arrow enclosed by the efficient frontier is convex (this is a mathematical thing). But if you draw what looks like an efficient frontier and then take a ruler and draw the tangent line from rf to it and a point higher than rf to it, it will be clear that the latter line has lower slope than the former.

I’m Da Church of the faithful, I’m Liao Fengyi, clergywoman mother should have to introduce you to me, I have seen you twice, in which time you are more impressed with everyone I guess in the back of the church at noon to eat noodle face!

Agreed with JoeyDvivre except you mean Y axis

X, Y…what’s the difference?  ;-)

Thanks for the catch.

I’m Da Church of the faithful, I’m Liao Fengyi, clergywoman mother should have to introduce you to me, I have seen you twice, in which time you are more impressed with everyone I guess in the back of the church at noon to eat noodle face!