Suppose You Hold a Diversified Portfolio Consisting of a $10,000

question 21

Multiple Choice

Suppose you hold a diversified portfolio consisting of a $10,000 investment in each of 12 different common stocks.The portfolio's beta is 1.25.Now suppose you decided to sell one of your stocks that has a beta of 1.00 and use the proceeds to buy a replacement stock with a beta of 1.34.What would be the portfolio's new beta?

• A)1.15
• B)1.21
• C)1.28
• D)1.34

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Definitions:

Binomial Distribution

A probability distribution that describes the number of successes in a fixed number of independent trials, each with the same probability of success.

Poisson Distribution

A probability distribution that expresses the probability of a given number of events occurring in a fixed interval of time or space, assuming these events occur with a constant mean rate and independently of the time since the last event.

Hypergeometric Probability

The probability of a certain number of successes in draws from a finite population without replacement, where each draw can result in a success or a failure.

Continuous Probability

The probability of outcomes in a continuous range of values rather than discrete outcomes.