A Portfolio Consists of Five Securities That Have Individual Betas

question 31

Multiple Choice

A portfolio consists of five securities that have individual betas of 1.38,0.87,1.02,1.49,and 0.67.You do not know the portfolio weight of each security.What do you know with certainty?

• A)The portfolio beta will not be affected by any change in the portfolio weights.
• B)The portfolio beta will not change if an additional security with a beta of 1 is added to the portfolio.
• C)The portfolio beta will be greater than the market beta.
• D)The portfolio beta will be less than 1.49 and greater than 0.67.
• E)The optimal portfolio beta for any investor must be greater than 0 and less than 1.

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Definitions:

Measurement Error

The difference between the value that is observed in a measurement and the true value of what is being measured, often due to imperfections in measurement techniques.

Poorly Worded Questions

Queries formulated in a way that makes them difficult to understand or answer accurately, often leading to confusion or misinterpretation.

Social Desirability Effects

The tendency for survey respondents to answer questions in a manner that will be viewed favorably by others, potentially skewing true responses.

Selection Bias

A distortion in statistical analysis resulting from the method of collecting samples that leads to incorrect conclusions.