You Hold a Diversified Portfolio Consisting of a $5,000 Investment

question 33

Multiple Choice

You hold a diversified portfolio consisting of a $5,000 investment in each of 20 different common stocks.The portfolio beta is equal to 1.15.You have decided to sell one of your stocks,a lead mining stock whose β = 1.0,for $5,000 net and to use the proceeds to buy $5,000 of stock in a steel company whose β = 2.0.What will be the new beta of the portfolio?

• A) 1.12
• B) 1.20
• C) 1.22
• D) 1.10
• E) 1.15

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Definitions:

Control Group

In experimental research, the group of participants that does not receive the experimental treatment or intervention, used as a baseline to compare the effects of the treatment.

Comparison Group

A group of subjects not exposed to the experimental treatment or intervention in a research study, used as a benchmark to assess the effect of such treatment.

Standard Group

A standard group, often comparable to a control group, refers to a group of subjects in an experimental setting who are exposed to the usual or benchmark conditions, enabling comparison to experimental outcomes.

Confederate Group

A group of individuals who are part of an experiment and are instructed to behave in a certain way by the researcher to manipulate the environment.