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6 May, 13:53

In a portfolio of three randomly selected stocks, which of the following could NOT be true; i. e., which statement is false? a. The standard deviation of the portfolio is less than the standard deviation of each of the stocks if they were held in isolation. b. The standard deviation of the portfolio is greater than the standard deviation of one or two of the stocks. c. The beta of the portfolio is lower than the lowest of the three betas. d. The beta of the portfolio is equal to one of the three stock's betas. e. The beta of the portfolio is equal to 1.

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  1. 6 May, 14:04
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    c. The beta of the portfolio is lower than the lowest of the three betas.

    Explanation:

    As for any investment portfolio, with number of investments, each investment has its own beta.

    When we compute the beta for entire portfolio, the beta is based on weighted average of investments.

    Under the weighted average method there are weights assigned on the basis of value of individual investment, out of total value of investment.

    Thus, the beta for portfolio, can never be less than the least beta of any individual investment in a portfolio.
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