You Own a Portfolio Which Is Invested Equally in Two

question 81

Multiple Choice

You own a portfolio which is invested equally in two stocks and a risk-free security. Beta is .89 for Stock A and 1.26 for Stock B. Which one of the following will increase the portfolio beta, all else being constant?

• A)increasing the amount invested in the risk-free security
• B)decreasing the weight of Stock B and increasing the weight of Stock A
• C)replacing Stock A with a security that has a beta of .77
• D)increasing the weight of Stock A and decreasing the weight of the risk-free security
• E)replacing Stock B with Stock C, which has a beta equal to that of the market

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Definitions:

Anorexia Nervosa

An eating disorder characterized by an intense fear of gaining weight and a distorted body image, leading to self-imposed starvation.

Self-Starvation

The deliberate and severe restriction of food intake, often associated with psychological disorders such as anorexia nervosa.

Body Dysmorphic Disorder

Syndrome involving obsessive concern over a part of the body the individual believes is defective.

Obsessive-Compulsive Disorder

A mental health disorder characterized by unwanted repetitive thoughts (obsessions) and actions (compulsions).