Question

The beta of any portfolio can be computed as the a. slope of the security market...

The beta of any portfolio can be computed as the

a. slope of the security market line

b. sum of the betas for each asset held in the portfolio divided by the number of assets in the portfolio.

c. weighted average of the betas for each asset held in the portfolio.

d. the standard deviation of the expected returns of the portfolio minus the risk-free rate.

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Answer #1

Correct answer is option c) weighted average of the betas for each asset held in the portfolio

a. slope of the security market line is [E(RP) - Rf] / Beta. Hence, slope of the SML is not beta. In fact, in the plot of SML, beta is along x - axis. Hence this statement is incorrect.

b. sum of the betas for each asset held in the portfolio divided by the number of assets in the portfolio - this statement is incorrect. It's the weighted average of the betas for each asset held in the portfolio.

c. weighted average of the betas for each asset held in the portfolio - this statement is correct.

d. the standard deviation of the expected returns of the portfolio minus the risk-free rate - this statement is incorrect. Beta is not calculated like this.

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