Vol 5, Reading 36, Pg 353
This concept has continued to confuse me throughout, even at Level 3
The example in Exhibit 3 states “because the market went up by 4.4% and the overall gain was 5.04%, the effective beta of the portfolio was 0.0504/0.044 = 1.15”
why is beta often computed as = return on portfolio / return on market? according to this formula, if beta = 0, portfolio return =0.
but a zero beta portfolio should generate a risk free return.
according to the CAPM, should’nt beta = excess return on portfolio / excess return on market? (excess in relation to risk free rate)