The beta of a portfolio of the firm's debt and equity:
A) is equal to the sum of all the betas.
B) is equal to the sum of all the betas weighted by their market value weight.
C) is greater than the beta of each component.
D) is always less than zero.

Question

Quizplus · Accepted Answer

The beta of a portfolio is calculated as the weighted average of the betas of its components, with the weights being their respective market values. This accounts for the different sizes and risks of the components in the overall portfolio risk.

The Beta of a Portfolio of the Firm's Debt and Equity