A Portfolio Consists of Five Securities That Have Individual Betas

question 8

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:

Variable Costs

Variable costs are expenses that change in proportion to the activity or volume of a business operation, such as materials and labor.

CCA Class

Capital Cost Allowance Class, a Canadian tax classification system for categories of depreciable property.

Book Value

is the net value of a company's assets found on its balance sheet, subtracting liabilities from the total value of assets.

Resell

The act of selling something that one has purchased to another buyer, often for a price higher than the original purchase price.