A portfolio beta can be deﬁned as the:
A) Weighted average of the betas of the individual securities within the portfolio.
B) Total of the betas of the individual securities within the portfolio.
C) Amount of unsystematic risk remaining after the portfolio is diversiﬁed.
D) Measure of the unsystematic risk of the portfolio relative to the level of market risk.
E) Measure of the total risk of the portfolio in excess of the level of market risk.

Question

Quizplus · Accepted Answer

A portfolio beta is a weighted average of the betas of the individual securities within the portfolio. Beta measures the sensitivity of a security's returns to the market returns and a portfolio's beta measures the sensitivity of the portfolio's return to the market returns. Therefore, it makes sense that the portfolio beta is a weighted average of the individual securities' betas, where the weights are the proportion of each security's value within the portfolio.

A Portfolio Beta Can Be Deﬁned as The