6. Which of the following is/are TRUE ? I. The standard deviation of a portfolio

Question

6. Which of the following is/are TRUE?

I. The standard deviation of a portfolio of two or more securities is always equal to the weighted average of the standard deviation of each of the individual securities in the portfolio.
II. A beta value of 2.0 for a security indicates the security has greater-than-average systematic risk, and, in this case, it indicates the security is twice as risky as market.
III. A beta value of 0.5 for a security the security has below-average systematic risk, and, in this case, it indicates the security is half as risky as market.

Explanation / Answer

I. The standard deviation of a portfolio of two or more securities is always equal to the weighted average of the standard deviation of each of the individual securities in the portfolio. - True
II. A beta value of 2.0 for a security indicates the security has greater-than-average systematic risk, and, in this case, it indicates the security is twice as risky as market. - True
III. A beta value of 0.5 for a security the security has below-average systematic risk, and, in this case, it indicates the security is half as risky as market. - True

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