Suppose you held a well-diversified portfolio with a very large number of securities, and that the single index model holds.If the $\sigma$ of your portfolio was 0.24 and $\sigma$_M was 0.18, the $\beta$ of the portfolio would be approximately A)0.64. B)1.33. C)1.25. D)1.56.

Question

Quizplus · Accepted Answer

The beta ($\beta$) of the portfolio in the single index model can be calculated using the formula $\beta = \frac{\sigma_{P}}{\sigma_{M}}$, where $\sigma_{P}$ is the standard deviation of the portfolio and $\sigma_{M}$ is the standard deviation of the market. Given $\sigma_{P} = 0.24$ and $\sigma_{M} = 0.18$, $\beta = \frac{0.24}{0.18} = 1.33$.

Suppose You Held a Well-Diversified Portfolio with a Very Large σ\sigmaσ

Suppose You Held a Well-Diversified Portfolio with a Very Large $\sigma$