Which one of the following statements is accurate?

Question

BlackTom AI · Accepted Answer

The question asks which statement about beta is accurate. 
Option 1 asserts that a portfolio beta cannot be computed from the betas of its securities because diversification eliminates some risk. While diversification reduces unsystematic risk, beta remains definable as a weighted average of the individual betas; this option misstates how beta is derived.
Option 2 claims that a portfolio of U.S. Treasury bills has a beta of +1.0. In practice, Treasury bills are considered nearly risk-free with a beta around 0, since their returns do not systematically move with the market; +1.0 would suggest market-like sensitivity, which is incorrect.
Option 3 states that a portfolio beta is a weighted average of the betas of the individual securities contained in the portfolio. This aligns with the fundamental property of beta in CAPM: portfolio beta equals the sum of each security’s beta weighted by its weight in the portfolio. This is a correct and standard result.
Option 4 claims that the beta of a market portfolio is equal to zero. In CAPM, the market portfolio has beta 1.0 because it moves fully with the market; a beta of zero would imply no systematic risk relative to the market, which is false.
Option 5 asserts that portfolio betas range between −1.0 and +1.0. In practice, portfolio betas can exceed 1 or be less than −1 in magnitude, depending on the constituent securities and their weights; thus, the range −1 to +1 is not a strict rule. This makes the statement inaccurate.
In summary, evaluating each choice shows that only Option 3 correctly describes how portfolio beta is determined, while the others misstate beta properties or implications.

Which one of the following statements is accurate?

View Explanation

Log in for full answers

Similar Questions

Question 1 of 2 What is the portfolio beta? Round your final answer to a number with two decimal places, i.e. if the answer is 1.2311 then write 1.23

You have a portfolio that is invested 20 percent in Stock R, 38 percent in Stock S, and the remainder in Stock T. The beta of Stock R is .75, and the beta of Stock S is 1.30. The beta of your portfolio is 1.18. What is the beta of the Stock T?

You have a portfolio that is invested 20 percent in Stock R, 38 percent in Stock S, and the remainder in Stock T. The beta of Stock R is .75, and the beta of Stock S is 1.30. The beta of your portfolio is 1.18. What is the beta of the Stock T?

See the attached spreadsheet for a table of various monthly returns Download attached spreadsheet for a table of various monthly returns over the past five years. Create a portfolio of the three stocks that consists of 10% Stock A, 70% Stock B, and 20% Stock C. What is the beta of the portfolio?

A stock has a beta of 1.56 and an expected return of 17.3 percent. A risk-free asset currently earns 5.1 percent. If a portfolio of the two assets has a beta of 1.06, what are the portfolio weights?

You own a portfolio equally invested in a risk-free asset and two stocks. If one of the stocks has a beta of 1.04 and the total portfolio is equally as risky as the market, what must the beta be for the other stock in your portfolio?

You would like to create a portfolio that is equally invested in a risk-free asset and two stocks. One stock has a beta of 1.14. What does the beta of the second stock have to be if you want the portfolio to be equally as risky as the overall market?

More Practical Tools for Students Powered by AI Study Helper

Homework AI Solver

Stylized AI Paper Writer

Plagiarism Checker Assistant

Citation AI Academic Writing Tool

In-Class Translation Assistant

AI Note Generator

AI Quiz Answers

Past Exam Questions from University Test Bank

Smart Practice Assistant

Adaptive Practice

Making Your Study Simpler