 # Effective beta calculation

Question says: Size of portfolio = 168m Allocation 70% stocks, 30% bonds S&P futures contracts priced at 1,526. No. of S&P contracts bought = 187. Multiplier = 250

6 months later, stock market has risen 2.2%, stocks in portfolio have generated a total return of 2,199,120 and S&P contracts are now priced at 1,547 Using Schweser method to calculate effective beta: Gain in S&P futures = 187 (1,547 – 1,526) = 981,750 Gain on portfolio = 2,199,120 Total portfolio value 6 months later = 981,750 + 2,199,120 + 168m = 171,880,870 Total portfolio return = 171,880,870 / 168,000,000 = 0.23 Effective beta = total portfolio return / market return = 0.23 / 0.22 = 1.05

The correct answer is = gain on portfolio + gain on futures) / equity value = (2,199,120 + 981,750) / 117,600,000 = 0.027

Effective beta = 0.027 / 0.022 = 1.23 What am I doing wrong in calculation where I get 1.05?

Your beginning equity value is 117,600,000

To eloborate further, just ifnore the 30% allocated to bonds and do all the calculations just for the 705 allocated to equity.

Beta is for equity Why is effective beta only looking at the equity component? The questions for effective beta use the wording hedged portfolio return = hedged portfolio ending value / hedged portfolio beginning value. So not sure why portfolio = equity?

think about it before you ask that question. do you have beta for a fixed income part of portfolio?

alternatively - are you going to use S&P contracts to adjust the S&P part of your portfolio?

Either way - you are thinking too much right now.

think about it before you ask that question. do you have beta for a fixed income part of portfolio?

alternatively - are you going to use S&P contracts to adjust the S&P part of your portfolio?

Either way - you are thinking too much right now.

Got it, beta is only for equity. But why do they use the word hedged portfolio , doesnt hedged equity make more sense? This is also the case with leverage, where they say the return on equity invested (i.e. the portfolio) = portfolio gain / equity