Suppose You Held a Well-Diversified Portfolio with a Very Large

question 38

Multiple Choice

Suppose you held a well-diversified portfolio with a very large number of securities,and that the single index model holds.If the σ of your portfolio was 0.18 and σ_Mwas 0.24,the b of the portfolio would be approximately ________.

• A) 0.75
• B) 0.56
• C) 0.07
• D) 1.03
• E) 0.86

---

Definitions:

Correlation Coefficient

A statistical measure that calculates the strength and direction of a linear relationship between two variables.

Inverse Correlation

A relationship between two variables in which they move in opposite directions; as one variable increases, the other decreases.

Independent Variable

A variable that is manipulated in an experiment to observe its effect on the dependent variable.

Dependent Variable

In scientific research, the outcome factor that researchers measure to examine the impact of variations in the independent variable.