Which one of the following statements is correct concerning a portfolio beta?
A) Portfolio betas range between −1.0 and +1.0.
B) A portfolio beta is a weighted average of the betas of the individual securities contained in the portfolio.
C) A portfolio beta cannot be computed from the betas of the individual securities comprising the portfolio because some risk is eliminated via diversification.
D) A portfolio of U.S. Treasury bills will have a beta of +1.0.
E) The beta of a market portfolio is equal to zero.

Question

Quizplus · Accepted Answer

A portfolio beta is a weighted average of the betas of the individual securities contained in the portfolio. This is because beta measures the systematic risk of a security, and a portfolio's beta reflects the systematic risk of the securities it contains. D and E are incorrect because a portfolio of U.S. Treasury bills will have a beta of 0, and the beta of a market portfolio is generally above 0. A is incorrect because portfolio betas can be below -1 or above +1 if there is leverage or shorting involved. C is incorrect because a portfolio beta can be computed from the betas of the individual securities, but diversification can reduce the overall risk of the portfolio.

Which One of the Following Statements Is Correct Concerning a Portfolio