Question

The systematic risk of a portfolio containing a stock and a bond, reflects a measure of...

The systematic risk of a portfolio containing a stock and a bond, reflects a measure of the correlation between the _______ and the __________.

A: the stock/bond portfolio and the stock/bond market indexes

B: the bond and the bond market index

C: the stock market index and the bond market index

D:the stock and the stock market index

E: the stock and the bond

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Answer #1

Option A is correct

The systematic risk of a portfolio containing a stock and a bond reflects a measure of the correlation between the stock/bond portfolio and the stock/bond market index.

Explanation - Systematic risk of a portfolio is a measure of market risk and it is given by the formula below:

Systematic Risk = βp*σM

and βp = ρp, M*(σp/σM), where ρp, M is the correlation between the stock/bond portfolio and the stock/bond index. Hence systematic risk reflects a measure of the correlation between the stock/bond portfolio and the stock/bond index.

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