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6. Which of the following is/are TRUE?

I. The standard deviation of a portfolio of two or more securities is always equal to the weighted average of the standard deviation of each of the individual securities in the portfolio.
II. A beta value of 2.0 for a security indicates the security has greater-than-average systematic risk, and, in this case, it indicates the security is twice as risky as market.
III. A beta value of 0.5 for a security the security has below-average systematic risk, and, in this case, it indicates the security is half as risky as market.

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Jamar Ferry
Jamar FerryLv2
28 Sep 2019

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Related questions

Security Standard deviation Beta
A. .35 1.45
B. .28 1.06
C. .44 1.22

Which of the following is correct?
A. Security C has the greatest total risk because it has the largest standard deviation.
B. Security A has the greatest total risk because it has the largest Beta.
C. Security A has the greatest diversifiable risk because it has the largest Beta
D. Security B has the lowest total risk because it has the lowest beta
E. And equally weighted portfolio of ABC will have the same systematic risk as the market portfolio

1. Security C has an expected return of 6% and a standard deviation of 3% while security D has an expected return of 10% and a standard deviation of 7%. The correlation of returns between the two securities is รขย€ย“1.

a) If you place half of the money in each stock, then what is the expected return of this portfolio?

b) If you place 20% of the money in stock C and the remaining in stock D, then what is the expected return of the portfolio?

c) What is the portfolio standard deviation in b above?


2. a) A security has a beta of 1.5 when the risk-free rate is 2.6 percent and the expected return on the market is 12 percent. Calculate the expected return on the security.

b) If the beta on the security in a) increases to 2.5, what is the new expected return? Why does the expected return increase as the beta increases?

Additional Requirements

Level of Detail: Show all work

Choose the correct answer:

The beta of an efficient portfolio: a. must be 1 since an efficient portfolio is perfectly positively correlated with the market portfolio.

b. is proportional to 1, depending on the proportion invested in the market portfolio.

c. is equivalent to the portfolio's standard deviation, since standard deviation is the measure of risk for an efficient portfolio.

d. is always less than 1.

Security A has a greater level of systematic risk than security B. The expected equilibrium return for A must be greater than that for B because:

a. B's price will fall as investors realize that B offers lower returns.

b. if it is not, then A's price will fall and B's price will rise as investors sell A and buy B.

c. the Security Market Line is negatively sloped.

d. the standard deviation of A's return is greater than B's.

In case of a simple CAPM being used to estimate a time series data:

a. the mean of a residual risk should be equal to zero.

b. the regression coefficient should be equal to zero.

c. the difference between the market return and the riskfree rate of return should be equal to zero.

d. the beta of the portfolio should be equal to zero.

In a CAPM framework, prohibiting short sales:

a. will prohibit investors from holding the market portfolio in equilibrium.

b. will make the security market line steeper.

c. will encourage investors to hold more riskless assets.

d. will not change the equilibrium.

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