Asked by Quang Quách on Jun 11, 2024
Verified
What is the effect on portfolio beta of a larger number of assets in a portfolio and a longer time period?
A) It is less stable.
B) It is more stable.
C) It is more consistent.
D) It is less consistent.
Portfolio Beta
A measurement of the volatility, or systematic risk, of a portfolio of assets compared to the market as a whole.
Larger Number
A numerical quantity that is greater in value when compared to another number.
Longer Time Period
A timeframe that extends beyond the short term, often implying a broader scope for assessment or investment.
- Realize the implications of portfolio construction on risk reduction and the concept of the efficient frontier.
Verified Answer
KV
Kristian VolekJun 12, 2024
Final Answer :
B
Explanation :
According to the diversification rule, a larger number of assets in a portfolio leads to lower portfolio beta and hence, a more stable portfolio. Similarly, a longer time period also leads to a more stable portfolio by reducing the impact of short-term fluctuations. Therefore, the combination of a larger number of assets in a portfolio and a longer time period results in a more stable portfolio beta.
Learning Objectives
- Realize the implications of portfolio construction on risk reduction and the concept of the efficient frontier.
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