The Beta of a Portfolio Is

question 46

Multiple Choice

The beta of a portfolio is

• A) is the weighted average of the betas of the individual assets in the portfolio.
• B) irrelevant, only the betas of the individual assets are important.
• C) does not change over time.
• D) the sum of the betas of all assets in the portfolio.

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Definitions:

Financial Leverage

The use of borrowed funds with the goal to increase the potential return on investment.

Leveraged Firm

A company that uses debt along with equity to finance its assets, often resulting in higher potential returns but also higher risk.

ROE

Return on Equity, a financial ratio indicating the profitability of a corporation in relation to stockholders’ equity, showing how well the company uses investments to generate earnings growth.

EPS

Earnings Per Share, a company's profit divided by the number of outstanding shares of its common stock, indicating the company's profitability.