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:

Fire Damage

Destruction or injury caused by fire.

Shareholder

An individual or entity that owns part of a public or private corporation through possession of one or more shares of its stock.

Insurable Interest

The financial or other type of interest a policyholder must have in the subject matter of the insurance policy, ensuring they suffer a financial loss if the insured event occurs.

Corporation Assets

The tangible and intangible assets owned by a corporation, including real estate, equipment, intellectual property, and financial investments.