In a given portfolio, replacing an existing investment with a lower beta investment results in _____.
A)an increase in the expected rate of rate return of the portfolio
B)a decrease in the actual rate of return of the portfolio
C)a decrease in the required rate of return of the portfolio
D)an increase in the systematic risk of the portfolio
E)the portfolio beta moving toward 1.0

Question

In a given portfolio, replacing an existing investment with a lower beta investment results in _____. 
A)an increase in the expected rate of rate return of the portfolio
B)a decrease in the actual rate of return of the portfolio
C)a decrease in the required rate of return of the portfolio
D)an increase in the systematic risk of the portfolio
E)the portfolio beta moving toward 1.0

Quizplus · Accepted Answer

Beta is a measure of an investment's volatility in relation to the market. A lower beta investment implies less volatility and therefore a lower required rate of return, as it is perceived to be less risky compared to a higher beta investment.

In a Given Portfolio, Replacing an Existing Investment with a Lower