You Hold a Portfolio Consisting of a $5,000 Investment in Each

question 15

Multiple Choice

You hold a portfolio consisting of a $5,000 investment in each of 20 different stocks.The portfolio beta is equal to 1.12.You have decided to sell a coal mining stock (b = 1.00) at $5,000 net and use the proceeds to buy a like amount of a mineral rights company stock (b = 2.00) .What is the new beta of the portfolio?

• A) 1.1139
• B) 1.1700
• C) 1.2311
• D) 1.2927
• E) 1.3573

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Definitions:

Agency Theory

A theory that explains the relationship between principals (such as shareholders) and agents (such as CEOs), emphasizing the need to align interests through contracts.

Agents

Individuals or entities authorized to act on behalf of others in commercial transactions or legal matters.

Principals

Individuals or entities who authorize agents to act on their behalf in business transactions or other matters.

Esteem Needs

Higher-level psychological needs involving self-respect, achievement, status, and recognition by others, according to Maslow's hierarchy of needs.