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John has inherited a portfolio from his late great aunt that is made up of 300...

John has inherited a portfolio from his late great aunt that is made up of 300 securities with betas that vary. The lowest beta for an individual security is .76 and the highest of the security betas of 1.53. Given this information, what do you know your inherited portfolio's beta:

  • will be between 0 and 1.0.

  • will be greater than or equal to .76 but less than or equal to 1.53.

  • will be less than or equal to .76 but greater than or equal to 1.53.

  • must be 1.0 because of the large number of securities in the portfolio.

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Answer #1

The beta of a portfolio is the weighted average betas of individual securities. Therefore the portfolio beta is bound by the range of the individual betas.

The portfolio beta will be greater than or equal to .76 but less than or equal to 1.53.

Option A is incorrect because it cannot be less than 0.76

Option C is incorrect because it cannot be less than 0.76 or greater than 1.53

Option D is incorrect because it may not be equal to 1.0 even if the number of securities are large.

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