Which one of the following statements is correct concerning a portfolio which consists of a risk-free asset and four stocks with individual betas of 1.1, 1.4, 1.5, and 1.8?
A) The beta of the portfolio must be greater than 1.0.
B) The expected return on the portfolio is equal to the market rate of return.
C) The portfolio can have more than, less than, or the same amount of systematic risk as the market.
D) A portfolio comprised of these five securities will eliminate all of the diversifiable risk.
E) The risk of the portfolio must be less than the market level of risk.

Question

Quizplus · Accepted Answer

The beta of a portfolio is a weighted average of the betas of its components. Since the betas of the stocks range from 1.1 to 1.8 and include a risk-free asset (which has a beta of 0), the portfolio's beta can be adjusted through weighting to be more than, less than, or equal to 1 (the market beta), indicating it can have more, less, or the same amount of systematic risk as the market.

Which One of the Following Statements Is Correct Concerning a Portfolio