Which one of the following statements concerning beta is correct?
A) The beta of a portfolio must be greater than or equal to zero but less than or equal to one.
B) The beta of a portfolio can be greater than the highest beta of an individual security within the portfolio.
C) If the weights of the individual securities within a portfolio are changed, the beta of the portfolio will remain constant.
D) The beta of a portfolio measures the systematic risk of the portfolio and has a value that cannot exceed the value of the highest beta of any individual security in the portfolio.
E) The beta of a portfolio measures the unsystematic risk of the portfolio and has a value that must be greater than or equal to zero.

Question

Quizplus · Accepted Answer

The beta of a portfolio measures the systematic risk of the portfolio relative to the market as a whole. It can indeed be less than, equal to, or greater than the beta of any individual security within the portfolio, depending on the weights and betas of the individual securities. However, it does not measure unsystematic risk, and there is no inherent rule that it cannot exceed the highest individual security's beta within the portfolio, making D the correct choice.

Which One of the Following Statements Concerning Beta Is Correct