When adding new securities to existing portfolio

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Reference no: EM132072912

1. You hold a portfolio consisting of a $10,000 investment in asset A and $20,000 investments in assets B and C (i.e., your total investment is $50,000). The beta of asset A is 0.50, the beta of asset B is 0.75, and the beta of asset C is 1.50. What is the beta of the portfolio?

a. 0.500 b. 0.750

c. 0.917 d. 1.000

e. 1.500

2. Which of the following statements is incorrect?

a. The slope of the security market line is measured by beta.

b. Two securities with the same stand-alone risk can have different betas.

c. Company-specific risk can be diversified away.

d. The market risk premium is affected by attitudes about risk.

e. Higher beta stocks have a higher required return.

3. When adding new securities to an existing portfolio, the higher or more positive the degree of correlation between the new securities and those already in the portfolio, the greater the benefits of the additional portfolio diversification.

a. True b. False

Reference no: EM132072912

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