With a given size portfolio, the higher the portfolio beta,
A)the more likely the portfolio is to go up, rather than down.
B)the more likely the portfolio is to go down, rather than up.
C)the fewer contracts necessary to hedge the portfolio.
D)the more contracts necessary to hedge the portfolio.

Question

Quizplus · Accepted Answer

The portfolio beta measures the sensitivity of the portfolio's returns to the market returns. A higher beta indicates that the portfolio is more volatile and will exhibit larger movements in response to market movements. To hedge a more volatile (higher beta) portfolio, more contracts would be necessary to offset the increased risk.

With a Given Size Portfolio, the Higher the Portfolio Beta