Question

Assume investors hold the market portfolio. Rank the following four securities based on their relative risk contributions to the market portfolio, with the one that will contribute the least risk first.

Security	Expected return	Standard deviation	Beta
A	13.2%	3.4%	0.8
B	18.6%	6.8%	1.4
C	15.0%	7.0%	1.0
D	14.1%	5.8%	0.9

		A) A, D, C, B
		B) A, D, B, C
		C) D, A, B, C
		D) C, B, A, D

Answer 1

Correct option is > A) A, D, C, B

Relative risk is compared with benchmark, the market risk. Beta of 1 means market risk and beta lesser than 1 means lower risk than market and beta more than 1 means higher risk than market.

Beta is systematic risk measure.

Security	Beta
A	0.8
B	1.4
C	1.0
D	0.9

A has lowest beta, D has second lowest and then C has similar risk to market which is third lowest here and last is B with highest beta of 1.4

Hence order is > A, D, C, B