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You have inherited a portfolio from your late uncle that is made up of 300 securities with betas that vary. The lowest beta for an individual security is .76 and the highest beta is 1.53. Given this information, what do you know about your inherited portfolio's beta?

User Rich Tier
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Final answer:

The portfolio's beta is the weighted average of the individual security betas ranging from 0.76 to 1.53, indicating a mix of securities that are both less and more volatile than the market.

Step-by-step explanation:

The question pertains to the calculation of the beta coefficient of a portfolio. Beta is a measure of a security's sensitivity to market movements. In the scenario provided, with securities having betas ranging between 0.76 and 1.53, the portfolio's beta would be a weighted average of these individual betas, depending on how much of each security is held in the portfolio. Without the exact proportions of each security in the portfolio, it is not possible to determine the precise beta of the portfolio. However, we can infer that the portfolio's beta will be within the given range and will reflect the weighted risk profile of the constituent securities.

Moreover, since beta is a measure of systemic risk, a portfolio with a beta less than 1 is considered less volatile than the market, while a beta greater than 1 indicates that the portfolio is more volatile. Given the range of betas in this portfolio, it includes both more volatile and less volatile securities than the market.

User Basilio German
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