You Own a Portfolio Which Is Invested Equally in Two

question 82

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 .76
• 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