You Own a Portfolio Which Is Invested Equally in Two

question 50

Multiple Choice

You own a portfolio which is invested equally in two stocks and a risk-free security.The stock betas are .89 for Stock A and 1.26 for Stock B.Which one of the following will increase the portfolio beta,all else constant?

• A) increasing the amount invested in the risk-free security
• B) decreasing the weight of Stock B and increasing the weight of Stock A
• C) replacing Stock A with a security that has a beta of .77
• D) increasing the weight of Stock A and decreasing the weight of the risk-free security
• E) replacing Stock B with Stock C,which has a beta equal to that of the market

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Definitions:

Demand Curve

A graph showing the relationship between the price of a good and the quantity demanded, typically downward sloping to the right.

Corporate Hierarchy

A structure in corporations that defines the levels of authority, roles, and responsibilities from top management to lower-level employees.

Natural Monopoly

A natural monopoly occurs when a single firm can supply the entire market at a lower cost than could be achieved by multiple firms due to economies of scale.

Economies of Scale

The cost advantages that enterprises obtain due to their scale of operation, with cost per unit of output generally decreasing with increasing scale as fixed costs are spread out over more units of output.