John has a portfolio consisting of equal proportions of 5 securities.Susan also has a portfolio of the same five securities but the weights of each security are not equal.Which of the statements below MUST be true?
A)Because Susan has an unequal distribution of securities,her portfolio beta must be less than John's.
B)Without additional information,we cannot be certain whose portfolio beta is greater.
C)Because Susan has an unequal distribution of securities,her portfolio beta must be greater than John's.
D)Because the portfolios contain the same securities,the beta of each portfolio must be the same.

Question

Quizplus · Accepted Answer

The beta of a portfolio depends not only on the securities held but also on the weights assigned to them. Without knowing the weights assigned by Susan to each security in her portfolio, we cannot determine whether her portfolio beta is greater than, equal to, or less than John's portfolio beta. Therefore, statement B is the only one that must be true.

John Has a Portfolio Consisting of Equal Proportions of 5