A Portfolio Is Comprised of 35 Securities with Varying Betas

question 17

Multiple Choice

A portfolio is comprised of 35 securities with varying betas.The lowest beta for an individual security is 0.74 and the highest of the security betas of 1.51.Given this information,you know that the portfolio beta:

• A)must be 1.0 because of the large number of securities in the portfolio.
• B)is the geometric average of the individual security betas.
• C)must be less than the market beta.
• D)will be between 0 and 1.0.
• E)will be greater than or equal to 0.74 but less than or equal to 1.51.

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Definitions:

Last Year

A term that refers to the immediate past calendar year or the most recent complete fiscal year.

Well-Diversified Portfolio

A portfolio containing a wide variety of investments which aims to reduce risk by spreading investments across different assets.

Single Index Model

A simplified model to estimate the return of a stock based on the performance of a single market index and the stock's sensitivity to that index.

Portfolio's Sigma

A statistical measure representing the volatility or risk associated with a portfolio's returns.