You own three stocks which have betas of 1.16,1.34,and 1.02.You would like to add a fourth security such that your portfolio beta will match that of the market.Given this situation,the new security:
A) must have a beta of 1.0.
B) must have a beta of zero.
C) could be a U.S. Treasury bill.
D) could have any beta greater than 1.0.
E) must have a portfolio weight of 50 percent or more.

Question

Quizplus · Accepted Answer

If the desired portfolio beta is equal to the beta of the market, then the new security must have a beta equal to 1.0. However, the question states that the new security only needs to match the beta of the market, not exceed it. Therefore, a U.S. Treasury bill, which has a beta of zero, would bring down the overall portfolio beta and match that of the market.

You Own Three Stocks Which Have Betas of 1