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

question 60

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 0.25 and σ_M was 0.21, the β of the portfolio would be approximately ________.

• A) 0.64
• B) 1.19
• C) 1.25
• D) 1.56

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Definitions:

Level of Significance

The probability of rejecting the null hypothesis in a statistical test when it is actually true; a measure of statistical significance.

Sum of Squares

A statistical technique used to describe the total variation in a dataset.

Error

The difference between a measured or observed value and the true value of the quantity of interest.

Normal Probability Distribution

A continuous probability distribution. Its probability density function is bell-shaped and determined by its mean m and standard deviation s.