Suppose you held a well-diversified portfolio with a very large number of securities, and that the...

Question

Question

Suppose you held a well-diversified portfolio with a very large number of securities, and that the...

Suppose you held a well-diversified portfolio with a very large number of securities, and that the single index model holds. If the σ of your portfolio was 0.20 and σM was 0.16, the β of the portfolio would be approximately

A.

0.64.

B.

0.80.

C.

1.25.

D.

1.56.

business finance

Add a comment Improve this question Transcribed image text

Answer 1

Answer #1

The beta is computed as shown below:

Beta ² = ² / M ²

Beta ² = 0.20² / 0.16²

Beta ² = 1.5625

Beta = 1.25

So, the correct answer is option C.

Feel free to ask in case of any query relating to this question

Add a comment

Answer 2

Similar Homework Help Questions

Suppose you held a well-diversified portfolio with a very large number of securities, and that the...

Suppose you held a well-diversified portfolio with a very large number of securities, and that the single index model holds. If the ? of your portfolio was 0.18 and ?M was 0.22, the ? of the portfolio would be approximately 1.19 0.82 1.56 0.64
29. Suppose you hold a well-diversified portfolio with a very large number of securities, and that...

29. Suppose you hold a well-diversified portfolio with a very large number of securities, and that the single index model is correct. If the risk-free rate is 2.5%, the market return is 13.6%, the Std Dev of your portfolio is 21% and the Std Dev of the market is 13%; then the return on your portfolio would be approximately: 30. Freddy has determined that for Calicentrics Central, expected return is 9.8%, and the standard deviation is 15.2. She has also...
Suppose that a well-diversified portfolio has an expected return of 11% and that the following tw...

Suppose that a well-diversified portfolio has an expected return of 11% and that the following two factors have an impact changes to GDP (Fi), and changes to unexpected inflation (F2), The risk free rate is 8%. The APT equation is: on this portfolio's returns: -0.05 + β| (0.035) + β2 (0.0825) (i) Suppose that the sensitivity of the well-diversified portfolio to GDP is (-1.25). What is its sensitivity to unexpected inflation? 5 Marks) (ii If one rebalances this well-diversified portfolio,...

You already have a very well-diversified portfolio of common stock with a beta of 2, and...

You already have a very well-diversified portfolio of common stock with a beta of 2, and you want to add stock AAA or BBB into the portfolio. AAA’s standard deviation is 0.2300 and its beta is 4. BBB’s standard deviation is 0.6500 and its beta is 0.5. How will the addition affect the portfolio’s risk? If we add more factors into the one-factor asset pricing model, what happens to the required returns, increase or decrease? If the expected future cash...
Assume that you hold a well-diversified portfolio that has an expected return of 11.0% and a...

Assume that you hold a well-diversified portfolio that has an expected return of 11.0% and a beta of 1.20. You are in the process of buying 1,000 shares of Alpha Corp at $15 a share and adding it to your portfolio. Alpha has an expected return of 21.5% and a beta of 1.70. The total value of your current portfolio is $85,000. What will the expected return and beta on the portfolio be after the purchase of the Alpha stock?...
Assume that you hold a well-diversified portfolio that has an expected return of 11.0% and a...

Assume that you hold a well-diversified portfolio that has an expected return of 11.0% and a beta of 1.20. You are in the process of buying 1,000 shares of Alpha Corp at $15 a share and adding it to your portfolio. Alpha has an expected return of 21.5% and a beta of 1.70. The total value of your current portfolio is $85,000. What will the expected return and beta on the portfolio be after the purchase of the Alpha stock?...

Suppose you held a diversified portfolio consisting of a $7,500 investment in each of 20 different...

Suppose you held a diversified portfolio consisting of a $7,500 investment in each of 20 different common stocks. The portfolio's beta is 0.75. Now suppose you decided to sell one of the stocks in your portfolio with a beta of 1.0 for $7,500 and use the proceeds to buy another stock with a beta of 1.90. What would your portfolio's new beta be?
Suppose you held a diversified portfolio consisting of a $7,500 investment in each of 20 different...

Suppose you held a diversified portfolio consisting of a $7,500 investment in each of 20 different common stocks. The portfolio's beta is 1.73. Now suppose you decided to sell one of the stocks in your portfolio with a beta of 1.0 for $7,500 and use the proceeds to buy another stock with a beta of 1.93. What would your portfolio's new beta be? Do not round intermediate calculations. Round your answer to two decimal places.
Suppose you held a diversified portfolio consisting of a $7,500 investment in each of 20 different...

Suppose you held a diversified portfolio consisting of a $7,500 investment in each of 20 different common stocks. The portfolio's beta is 1.05. Now suppose you decided to sell one of the stocks in your portfolio with a beta of 1.0 for $7,500 and use the proceeds to buy another stock with a beta of 0.60. What would your portfolio's new beta be? Do not round intermediate calculations. Round your answer to two decimal places.

Suppose you held a diversified portfolio consisting of a $7,500 investment in each of 20 different...

Suppose you held a diversified portfolio consisting of a $7,500 investment in each of 20 different common stocks. The portfolio's beta is 2.30. Now suppose you decided to sell one of the stocks in your portfolio with a beta of 1.0 for $7,500 and use the proceeds to buy another stock with a beta of 1.88. What would your portfolio's new beta be? Do not round intermediate calculations. Round your answer to two decimal places.

Suppose you held a well-diversified portfolio with a very large number of securities, and that the...

Homework Answers

Add Answer to:
Suppose you held a well-diversified portfolio with a very large number of securities, and that the...

Post as a guest

Earn Coins