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

question 73

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 0.22 and σ_M was 0.19, the β of the portfolio would be approximately

• A) 1.34.
• B) 1.16.
• C) 1.25.
• D) 1.56.

---

Definitions:

Financing Costs

Expenses associated with raising capital through debt or equity.

Obsolescence

The process of becoming outdated or no longer used, often due to technological advances.

Credit Standards

The criteria and measures used by lenders to determine the creditworthiness of potential borrowers.

Bad-Debt Losses

Financial losses that occur when borrowers fail to pay back their loans.