Suppose You Hold a Diversified Portfolio Consisting of a $10,000

question 121

Multiple Choice

Suppose you hold a diversified portfolio consisting of a $10,000 investment in each of 12 different common stocks. The portfolio's beta is 1.25. Now suppose you decided to sell one of your stocks that has a beta of 1.00 and to use the proceeds to buy a replacement stock with a beta of 1.34. What would the portfolio's new beta be?

• A) 1.15
• B) 1.21
• C) 1.28
• D) 1.34

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Definitions:

Upstream Sale

A transaction in which a subsidiary sells goods to its parent company, affecting intercompany transactions and profit figures.

Consolidated Financial Statements

Financial statements that aggregate the financial position and results of operations of a parent and its subsidiaries, presenting the economic activities as those of a single entity.

Asset Sold

The process of transferring ownership of a business resource, which could be tangible or intangible, from one entity to another, usually in exchange for cash or its equivalent.

Unrealized Gain

An increase in the value of an asset or investment that has not yet been sold and thus, the gain has not been realized as actual profit.