How Is It Possible to Invest Only in the Market

question 61

Multiple Choice

How is it possible to invest only in the market portfolio yet have a portfolio beta of 1.5?

• A) Don't diversify away the unique risks.
• B) Purchase only aggressive stocks for the portfolio.
• C) Purchase only stocks with high levels of systematic risk.
• D) Borrow funds to increase your investment.

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Definitions:

CAPM

The Capital Asset Pricing Model is a theoretical framework that explains how the expected return on assets, especially stocks, is related to their systematic risk.

Measure of Return

A financial metric used to quantify the performance of an investment by assessing the gain or loss it generates.

Unit of Risk

A Unit of Risk quantifies the exposure to potential loss in an investment, typically measuring the volatility or variability of returns over a specified period.

Standard Deviation

A measure of the dispersion or variability of a set of values, indicating how much the values differ from the mean of the set.