A portfolio is comprised of 35 securities with varying betas.The lowest beta for an individual security is 0.74 and the highest of the security betas of 1.51.Given this information,you know that the portfolio beta:
A)must be 1.0 because of the large number of securities in the portfolio.
B)is the geometric average of the individual security betas.
C)must be less than the market beta.
D)will be between 0 and 1.0.
E)will be greater than or equal to 0.74 but less than or equal to 1.51.

Question

Quizplus · Accepted Answer

The portfolio beta will be a weighted average of the individual security betas. Since the lowest beta is 0.74 and the highest is 1.51, the portfolio beta will be between those two values. Therefore, the best choice is E, which states that the portfolio beta will be greater than or equal to 0.74 but less than or equal to 1.51. Choices A, B, C, and D are incorrect because they do not accurately reflect how the portfolio beta is calculated or the given information.

A Portfolio Is Comprised of 35 Securities with Varying Betas