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

question 8

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 0.20 and σ_M was 0.16, the β of the portfolio would be approximately

• A) 0.64.
• B) 0.80.
• C) 1.25.
• D) 1.56.

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Definitions:

Salivation in Dogs

An automatic response that occurs in dogs when they anticipate food, famously studied by Pavlov in his classical conditioning experiments.

Nobel Prize

A set of annual international awards bestowed in several categories by Swedish and Norwegian institutions in recognition of academic, cultural, or scientific advances.

Classical Conditioning

A behavioral technique where two stimuli are systematically linked together; over time, a reaction originally elicited by the second stimulus is elicited by the first stimulus alone.

Reflex Response

An automatic, involuntary reaction to a specific stimulus, occurring without conscious thought as part of the body's defense mechanisms.