An asset has a standard deviation of 15% and a correlation with the market portfolio of 0

Q1:

Beta=covariance(A,M)/variance(M)

Covariance(A,M) =correl*std Asset*std dev Market = .46*.15*.25 =0.01725

Variance(M) = (std dev Market)^2 =.25^2 =.0625

beta= 0.01725/.0625 =.276

Q2:

Beta value shows that if market returns moves by 1 percentage; the return on the asset increase by .276%. It shows the systematic risk of the asset related to the market. Lower the beta value lower the systematic risk.

Q3:

Utility of the portfolio is given by ;

U = E(r) – 0.5 x A x σ²

where A is the risk averse coefficient;

From the equation ; assuming a risk free rate of zero;

I will be investing if Utility is a positive value

ie: E(r)> .5*A*.15^2

E(r)>.01125A

For all values of expected return greater than .01125A where A is the risk aversion coeffcient; We can invest in the asset.