You have $100,000 invested. Of that, $50,000 is invested in IVM stock which has

Question

You have $100,000 invested. Of that, $50,000 is invested in IVM stock which has a beta of 1.4, $30,000 is invested in UBM stock with a beta of 1.2, and the remainder is invested in T-Bills. Which of the following is true? (Hint: T-Bills are generally considered risk-free, therefore, their beta must be …)

A. You have 30% of your portfolio invested in T-Bills.

B. Your portfolio has no diversifiable risk since it has T-Bills in it.

C. Your portfolio’s overall beta is 1.06.

D. Your portfolio is less volatile than the overall market since it has T-Bills.

A. You have 30% of your portfolio invested in T-Bills.

B. Your portfolio has no diversifiable risk since it has T-Bills in it.

C. Your portfolio’s overall beta is 1.06.

D. Your portfolio is less volatile than the overall market since it has T-Bills.

Explanation / Answer

The Correct option is D - Your portfolio is less volatile than the overall market since it has T-Bills

As the T bills are risk free hence there beta is 0. So the beta of the porfolio would be 0.9.

A beta of less than 1 means that the security will be less volatile than the market

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