Deck 9: The Capital Asset Pricing Model Capm

Question 1

Which of the following is a TRUE statement?

A) The tangent portfolio is the risky portfolio on the efficient frontier whose tangent line cuts the horizontal axis at the risk-free rate.
B) The new (or super) efficient frontier represents the portfolios composed of the risk-free rate and the tangent portfolio that offers the highest expected rate of return for any given level or risk.
C) The separation theorem states that the investment decision, (how to construct the portfolio of risky assets), is not separate from the financing decision, (how much should be invested or borrowed in the risk-free asset).
D) The market portfolio is a portfolio that contains some risky securities in the market.

Answer 1

B

Question 2

A portfolio consists of two securities: a risk-free asset and an equity security.The expected return on the risk-free asset is 4.75 percent.The expected return of the equity security is 17 percent with a standard deviation of 23 percent.What is the portfolio expected return if the standard deviation for the portfolio is 18 percent?
a) 7.41%
b) 14.34%
c) 18.00%
d) 20.40%

Answer 2

b,Weight in equity, ,weight in risk free asset = 1 - 0.7826 = 0.2174
Portfolio expected return,

Question 3

A portfolio consists of two securities: a 90-day T-bill and the S&P/TSX Composite.The expected return on the T-bill is 4.5 percent.The expected return of the S&P/TSX Composite is 18 percent with a standard deviation of 30 percent.What is the portfolio expected return if the standard deviation for this portfolio is 50 percent?
a) 12.60%
b) 27.00%
c) 30.00%
d) 47.00%

Answer 3

b,Weight in stock Y, ,weight in risk-free asset = 1 - 1.6667 = -0.6667
Portfolio expected return,

Question 4

What is the expected return for a portfolio that has $2,500 invested in a risk-free asset with a 5 percent rate of return,and $7,500 invested in a risky asset with a 17 percent rate of return and a 28 percent standard deviation?
a) 8.00%
b) 10.75%
c) 14.00%
d) 22.25%

Question 5

The market portfolio is most accurately described as:

A) The portfolio that follows market averages like the S&P/TSX or the S&P 500
B) The portfolio similar to the MSCI AC World index
C) The portfolio of all risky assets in the world weighted in their own proportions
D) The portfolio of all assets including risk-free assets

Question 6

Theoretically,what is meant by the market portfolio?

A) The market index portfolio similar to the S&P 500 or S&P/TSX Composite
B) The world index portfolio similar to the MSCI AC World index
C) All risky assets in the world with their own proportions
D) All assets including risk-free assets

Question 7

A risk-averse investor has an opportunity to invest in the following securities: Security A costs $10 today and will have a value of $25 if the market goes up and $0 if the market goes down; Security B costs $8 today and will have a value of $12 if the market goes up and $6 if the market goes down; and Security C costs $5 today and will have a value of $20 if the market goes up and -$20 if the market goes down.If there is a 40 percent chance that the market will go up and the risk-free rate is zero,which security(ies)will the investor prefer?
a) A only
b) B only
c) C only
d) A and B only

Question 8

A portfolio has $1,200 invested in a risk-free asset with a 5 percent rate of return,and $3,800 invested in a risky asset with a 15 percent rate of return and a 20% standard deviation.What is the standard deviation of the portfolio?
a) 4.80%
b) 8.75%
c) 15.20%
d) 16.77%

Question 9

What is the standard deviation for a portfolio that has $3,500 invested in a risk-free asset with 5 percent rate of return,and $6,500 invested in a risky asset with a 15 percent rate of return and a 22 percent standard deviation?
a) 7.70%
b) 9.75%
c) 5.25%
d) 14.30%

Question 10

A portfolio consists of two securities: a 90-day T-bill and the S&P/TSX Composite.The expected return on the T-bill is 4.5 percent.The expected return on the S&P/TSX Composite is 12 percent with a standard deviation of 20 percent.What is the portfolio standard deviation if the expected return for this portfolio is 15 percent?
a) 8.13%
b) 12.00%
c) 16.80%
d) 28.00%

Question 11

Which one of the following is NOT true?

A) Insurance premiums change with the level of risk aversion of the investor.
B) Risk premiums change with the level of risk aversion of the investor.
C) All investors are sitting at the same point on the efficient frontier.
D) T-bills represent the lowest level of return that an investor expects to get.

Question 12

A portfolio consists of two securities: a risk-free asset and an equity security.The expected return on the risk-free asset is 4.25 percent.The expected return of the equity security is 16 percent with a standard deviation of 22 percent.What is the portfolio standard deviation if the expected return for the portfolio is 12 percent?
a) 6.99%
b) 7.49%
c) 10.55%
d) 14.51%

Question 13

What are the expected return and standard deviation for a portfolio that has $2,000 invested in a risk-free asset with 5.25 percent rate of return,and $8,000 invested in a risky asset with a 21 percent rate of return and a 35 percent standard deviation?
a) Expected return = 17.85%; standard deviation = 28.00%
b) Expected return = 28.00%; standard deviation = 17.85%
c) Expected return = 7.00%; standard deviation = 8.40%
d) Expected return = 8.40%; standard deviation = 7.00%

Question 14

Which of the following is NOT a correct statement?

A) Risk-averse investors will not willingly undertake fair gambles.
B) Risk-averse investors prefer to gamble on a risky situation where there is an equal probability of winning or losing the same amount of money.
C) Risk-averse investors require a risk premium to bear risk; the more risk averse they are, the higher the risk premium they require.
D) Risk-averse investors are willing to pay an insurance premium to get out of a risky situation.

Question 15

What is the expected value from an investment that is equally likely to move from $100 to $180 or $100 to $70?
a) $ 140
b) $ 115
c) $ 85
d) $ 125

Question 16

Given the following information,which investment(s)would risk-averse investors prefer if the risk-free rate is 5 percent?

a) I only
b) II only
c) III only
d) I and II only

Question 17

What is the expected payoff from an investment that is equally likely to move from $100 to $180 or $100 to $70?
a) 40
b) 15
c) -15
d) 25

Question 18

Which of the following investments would a risk-averse investor prefer if the risk-free rate is zero?

a) I only
b) II only
c) III only
d) I and III only

Question 19

Use the following statements to answer this question:
I)The risk premium is the expected payoff needed to get out of a risky situation.
II)The insurance premium is the payment needed to get into a risky situation.
III)Risk-averse investors willingly take fair gambles.

A) I, II, and III are correct.
B) I, II, and III are incorrect.
C) I, II are correct, and III is incorrect.
D) I, II are incorrect, and III is correct.

Question 20

Which one of the following is NOT true?

A) The separation theorem states that the borrowing decision and investment decision are separate.
B) Investors should look at investments in terms of their prospective return, not their cost
C) The separation theorem states that you cannot separate your risk-free and stock investments.
D) The market portfolio is the tangent line that goes through the risk-free rate.

Question 21

What is the expected return on an efficient portfolio with a standard deviation of 15 percent? Assume the risk-free rate is 6 percent and the expected return on the market portfolio is 14.8 percent with a standard deviation of 20 percent.
a) 8.20%
b) 12.60%
c) 16.50%
d) 17.73%

Question 22

Greg has $10,000 to invest in a risk-free asset and the market portfolio.The risk-free rate is 4.8 percent.The market portfolio has an expected return of 13.6 percent with a standard deviation of 15 percent.What are the expected return and standard deviation for a portfolio with 30 percent of the funds invested in the risk-free asset?
a) Expected return = 10.50%; standard deviation = 10.96%
b) Expected return = 10.96%; standard deviation = 10.50%
c) Expected return = 4.50%; standard deviation = 7.44%
d) Expected return = 7.44%; standard deviation = 4.50%

Question 23

Which of the following is NOT an implication resulting from the assumption that capital markets are in equilibrium?

A) All assets are assumed to be bought and sold at the equilibrium price established by supply and demand.
B) All assets are not correctly priced to adequately compensate investors for the associated risks.
C) The price for an overpriced asset would eventually fall to an equilibrium level so that the asset is held by all investors.
D) The market portfolio will be the most efficient portfolio, with respect to the weights attached to the individual securities composing it.

Question 24

What is the standard deviation of an efficient portfolio with an 8 percent expected return? Assume the risk-free rate is 3.75 percent and the expected return on the market portfolio is 10 percent with a standard deviation of 20 percent.
a) 2.62%
b) 6.40%
c) 6.80%
d) 13.60%

Question 25

Suppose you have $5,000 to invest in a risk-free asset and the market portfolio.The expected return on the market portfolio is 13.5 percent with a standard deviation of 18 percent.The risk-free rate is 4.25 percent.How much of your funds should be in the risk-free asset if the portfolio has an expected return of 10 percent?
a) $1,892
b) $2,091
c) $2,909
d) $3,108

Question 26

The expected return on the market is 12 percent with a standard deviation of 20 percent.The risk-free rate is 4.5 percent.What is the Sharpe ratio of a portfolio with an expected return of 10.5 percent and a standard deviation of 12 percent?
a) 0.38
b) 0.50
c) 0.70
d) 0.88

Question 27

An efficient portfolio has a 18% expected return.If the expected market return is 11% (with a standard deviation of 18%),and the risk-free rate is 5.5 %,what is the standard deviation of the portfolio?
a) 9.33%
b) 11.12%
c) 19.37%
d) 40.91%

Question 28

The expected return on the market is 12.5 percent with a standard deviation of 25 percent.The risk-free rate is 5.5 percent.What is the expected return on an efficient portfolio with a standard deviation of 30 percent?
a) 4.10%
b) 11.33%
c) 13.90%
d) 28.90%

Question 29

Which of the following is a FALSE statement of the market price of risk?

A) It is the incremental risk divided by the incremental expected return.
B) It is the slope of the capital market line.
C) It is the equilibrium price of risk in the capital market.
D) It indicates the additional expected return that the market demands for an increase in a portfolio's risk.

Question 30

Which of the following is a NOT an assumption of the CAPM?

A) All investors have different expectations about expected returns, standard deviations, and correlation coefficients for all securities.
B) All investors can borrow or lend money at the risk-free rate of return.
C) There are no transaction costs.
D) There are no personal income taxes so that investors are indifferent between capital gains and dividends.

Question 31

By combining the risk-free asset and the efficient frontier,the _____________ will be created.

A) capital market line
B) efficient frontier
C) security market line
D) attainable set

Question 32

The expected return of the market portfolio is 14 percent with a standard deviation of 25 percent.The risk-free rate is 6 percent.What would be the weight of the market portfolio in an efficient portfolio with a standard deviation of 30 percent,if borrowing is not allowed?
a) 16.78%
b) 83.33%
c) 20%
d) Cannot be constructed

Question 33

Use the following three statements to answer this question:
I)The CML must always be upward sloping,and it predicts required returns.
II)The CML is based on expected rates of return,so it is ex post.
III)The CML slope is the Sharpe ratio.

A) I, II, and III are correct.
B) I, II, and III are incorrect.
C) I and III are correct and II is incorrect.
D) I is incorrect, II and III are correct.

Question 34

Which of the following is a FALSE statement about the Sharpe ratio?

A) It is used to assess the performance of portfolios.
B) It describes how well an asset's return compensates investors for the risk taken.
C) It is the slope of the CML when the portfolio is not the market portfolio.
D) It is a "risk-adjusted" measure of portfolio performance.

Question 35

What does the capital market line represent?

A) The highest attainable expected return for any given risk level that includes only efficient portfolios.
B) The frontier of efficient portfolios of risky assets.
C) The best return portfolio.
D) The lowest variance portfolios.

Question 36

The risk-free rate is 5.25 percent.The expected return on the market is 12 percent with a standard deviation of 18 percent.What is the standard deviation of an efficient portfolio with a 16 percent expected return?
a) 7.33%
b) 10.12%
c) 19.11%
d) 28.67%

Question 37

The CML relates:

A) expected return to beta.
B) the risk-free rate to the market portfolio's rate of return.
C) risk to beta.
D) expected return to standard deviation.

Question 38

The CAPM Model makes all the assumptions below EXCEPT:

A) Assuming no transactional costs.
B) Assuming no personal income taxes.
C) Assuming all investors have different expectations about expected returns, and standard deviations for all traded securities.
D) Assuming all investors can borrow/lend at the risk-free rate.

Question 39

Min has $5,000 to invest.The expected return on the market portfolio is 11 percent with a standard deviation of 15 percent.What are the expected return and standard deviation for the portfolio if she borrowed $2,000 at the risk-free rate of 4 percent to invest in the market portfolio?
a) Expected return = 19.40%; standard deviation = 15.40%
b) Expected return = 15.40%; standard deviation = 19.40%
c) Expected return = 13.80%; standard deviation = 21.00%
d) Expected return = 21.00%; standard deviation = 13.80%

Question 40

The expected return on the market is 12 percent with a standard deviation of 15 percent and the risk-free rate is 5 percent.What is the required return on an efficient portfolio that has a standard deviation of 18 percent?
a) 10.83%
b) 12.67%
c) 13.40%
d) 14.40%

Question 41

Under the CAPM,an investor should be compensated for bearing:

A) total risk
B) diversifiable risk
C) systematic risk
D) unsystematic risk

Question 42

The expected return on the market is 11.5 percent with a standard deviation of 13 percent and the risk-free rate is 4 percent.Which of the following portfolios are undervalued?

a) 1 and 2 only
b) 1 and 4 only
c) 2 and 3 only
d) 3 and 4 only

Question 43

Suppose you have $2,000 to invest.The market portfolio has an expected return of 10.5 percent and a standard deviation of 16 percent.The risk-free rate is 3.75 percent.How much should you invest in the risk-free asset if you wish to have a 15 percent return on the portfolio?
a) $667
b) -$667
c) $1,333
d) -$1,333

Question 44

Which of the following is a FALSE statement about the security market line (SML)?

A) It is upward sloping, which indicates that investors require a higher expected return on riskier securities.
B) It represents the trade off between total risk and the required rate of return for any risky security.
C) It indicates that the size of the risk premium varies directly with a security's market risk, as measured by beta.
D) It implies that securities with betas less than the market beta of 1.0 are less risky than the "average" stock and will therefore have lower required rates of return.

Question 45

Which of the following is NOT a correct statement of beta?

A) It is a measure of market risk.
B) It measures the risk of an individual stock or portfolio relative to the market portfolio.
C) It is the slope of the capital market line.
D) It changes through time as the risk of the underlying security or portfolio changes.

Question 46

Use the following three statements to answer this question:
I)The CAPM points out that rational investors should be compensated for unique risk.
II)The CAPM implies that non-systematic risk is the appropriate measure of risk to determine the risk premium required by investors for holding a risky security.
III)The expected return from non-systematic risk is zero.

A) I, II and III are correct.
B) I and II are incorrect, III is correct.
C) I, II are correct, III is incorrect.
D) I, III are incorrect, II is correct.

Question 47

The expected return on the market is 15 percent with a standard deviation of 12.5 percent and the risk-free rate is 5 percent.Which of the following portfolios are correctly priced?

a) 1 and 3 only
b) 1 and 4 only
c) 2 and 3 only
d) 3 and 4 only

Question 48

Use the following three statements to answer this question:
I)The capital market line (CML)depicts the highest attainable expected return for any given risk level that includes only efficient portfolios.
II)The security market line (SML)depicts the required rate of return for any given risk level that includes only individual securities.
III)The Security Market Line (SML)measures the price of systematic risk.

A) I, II and III are correct.
B) I, II and III are incorrect.
C) I and III are correct, II is incorrect.
D) I is incorrect, II and III are correct.

Question 49

Which of the following describes how the portfolio changes relative to changes in the overall market?

A) market risk premium
B) beta
C) risk-free rate
D) systematic risk

Question 50

Assume that the CAPM holds.If a security has a beta of 1,its expected return is:

A) the risk-free rate
B) 1 percent
C) the return on the market portfolio
D) cannot be determined with the above information

Question 51

The expected return on the market is 12 percent with a standard deviation of 15 percent and the risk-free rate is 4.5 percent.Which of the following portfolios are overvalued?

a) 1 and 2 only
b) 1 and 4 only
c) 2 and 3 only
d) 3 and 4 only

Question 52

The expected returns for Securities ABC and XYZ are 8 percent and 13 percent,respectively.The standard deviation is 12 percent for ABC and 18 percent for XYZ.There is no relationship between the returns on the two securities.The market return is 12.5 percent with a standard deviation of 16 percent.The risk-free rate is 5 percent.What is the Sharpe ratio of a portfolio with 40 percent of the funds in ABC and 60 percent in XYZ?
a) 0.47
b) 0.51
c) 0.75
d) 0.93

Question 53

The expected return of Security A is 12 percent with a standard deviation of 15 percent.The expected return of Security B is 9 percent with a standard deviation of 10 percent.Securities A and B have a correlation of 0.4.The market return is 11 percent with a standard deviation of 13 percent and the risk-free rate is 4 percent.What is the Sharpe ratio of a portfolio if 35 percent of the portfolio is in Security A and the remainder in Security B?
a) 0.54
b) 0.61
c) 0.86
d) 1.02

Question 54

The expected return on the market portfolio is 13 percent with a standard deviation of 16 percent.What are the expected return and standard deviation for a portfolio with 40 percent of the investment in the market portfolio borrowed at the risk-free rate of 5 percent?
a) Expected return = 26.67%; expected return = 18.33%
b) Expected return = 18.33%; standard deviation = 26.67%
c) Expected return = 22.40%; standard deviation = 16.20%
d) Expected return = 16.20%; standard deviation = 22.40%

Question 55

The expected returns for Securities ABC and XYZ are 8 percent and 13 percent,respectively.The standard deviation is 12 percent for ABC and 18 percent for XYZ.There is no relationship between the returns on the two securities.The market return is 12.5 percent with a standard deviation of 16 percent.The risk-free rate is 5 percent.Which of the following is not an efficient portfolio as determined by the lowest Sharpe ratio?
a) 100% invested in ABC is efficient
b) 100% invested in XYZ is efficient
c) 52% in ABC and 48% XYZ is efficient
d) 48% in ABC and 52% XYZ is efficient

Question 56

The expected return of Security A is 12 percent with a standard deviation of 15 percent.The expected return of Security B is 9 percent with a standard deviation of 10 percent.Securities A and B have a correlation of 0.4.The market return is 11 percent with a standard deviation of 13 percent and the risk-free rate is 4 percent.Which one of the following is not an efficient portfolio,as determined by the lowest Sharpe ratio?
a) 100% invested in A is efficient
b) 100% invested in B is efficient
c) 41% in A and 59% B is efficient
d) 59% in A and 41% B is efficient

Question 57

Marie has $10,000 to invest.She decided to borrow some funds at the risk-free rate of 6 percent to increase her investment in a portfolio with an expected return of 25 percent and a standard deviation of 30 percent.What is the expected return and standard deviation for her portfolio if she borrowed 50 percent of the portfolio value?
a) Expected return = 34.50%; standard deviation = 45.00%
b) Expected return = 45.00%; standard deviation = 34.50%
c) Expected return = 44.00%; standard deviation = 60.00%
d) Expected return = 60.00%; standard deviation = 44.00%

Question 58

The ____________ measures the sensitivity of the portfolio to changes in the overall market.

A) risk-free rate
B) beta
C) risk
D) market premium

Question 59

Beta is a measure of:

A) Total risk.
B) Diversifiable risk.
C) Systematic risk.
D) Unsystematic risk.

Question 60

Use the following three statements to answer this question:
I)A security with a beta of zero implies that all of the variability in this security's return is diversifiable by any investor holding a well-diversified portfolio.
II)A security with a beta of 1 implies that if the market increased (or decreased)by 1 percent,the return on the security would increase (decrease)by more than 1 percent on average.
III)A security that has a beta cannot be priced.

A) I, II and III are correct.
B) I, II and III are incorrect.
C) I is correct, II and III are incorrect.
D) I, II are incorrect, III is correct.

Question 61

Stock Z has a standard deviation of 18 percent and a covariance with the market of 0.0625.The expected return of the market is 13 percent with a standard deviation of 20 percent.The risk-free rate is 5 percent.What is the required return of Stock Z?
a) 7.50%
b) 7.78%
c) 17.50%
d) 20.43%

Question 62

What is the beta of a portfolio if 40 percent of the funds are invested in a risk-free asset and the balance of the funds is invested in the market portfolio?
a) 0.4
b) 0.6
c) 0.8
d) 1.0

Question 63

_____________ is a measure of the risk of a security that cannot be avoided through diversification.

A) Variance
B) Standard deviation
C) Total risk
D) Beta

Question 64

What is the difference between the security market line (SML)and the capital market line (CML)?

A) SML prices total risk where CML prices non-systematic risk
B) SML prices systematic risk where CML prices total risk
C) SML prices total risk where CML prices systematic risk
D) SML prices systematic risk where CML prices non-systematic risk

Question 65

Use the following three statements to answer this question:
I)Beta is constant over time.
II)Empirically beta is never negative.
III)Negative beta implies a negative standard deviation.

A) I, II and III are correct.
B) I, II and III are incorrect.
C) I is correct, II and III are incorrect.
D) I, II are incorrect, III is correct.

Question 66

According to the Capital Asset Pricing Model (CAPM),which one of the following statements is NOT true?

A) The expected rate of return of a security decreases proportionally with a decrease in the risk-free rate.
B) The expected rate of return of a security increases as its beta increases.
C) A fairly priced security has an alpha of zero.
D) In equilibrium, all securities lie on the security market line.

Question 67

Use the following two statements to answer this question:
I)In equilibrium,the expected return on all properly priced securities will lie on the SML.
II)Securities that are undervalued will lie below the SML.

A) I and II are correct.
B) I and II are incorrect.
C) I is correct, II is incorrect.
D) I is incorrect, II is correct.

Question 68

What is the beta of a portfolio if 20 percent of the funds are invested in Stock A with a beta of 2,30 percent in Stock B with a beta of 0.8,15 percent in Stock C with a beta of 2.2,and the remainder in Stock D with a beta of 1.4?
a) 1.23
b) 1.46
c) 1.74
d) 1.98

Question 69

Stock Y has a standard deviation of 22 percent and a covariance with the market of 0.081.The expected return of the market is 14 percent with a standard deviation of 18 percent.The risk-free rate is 5.25 percent.What is the beta of Stock Y?
a) 0.37
b) 0.45
c) 1.67
d) 2.50

Question 70

Given the following information,what is the beta of Stock X?

a) 0.08
b) 0.41
c) 0.62
d) 1.61

Question 71

Which one of the following stocks does NOT have a beta close to 1?

A) A stock that is part of the most dominant industry.
B) A stock that has a very high capitalization.
C) A newly listed stock.
D) The stock of a well-established firm.

Question 72

What is the beta of a portfolio if 30 percent of the funds are invested in a risk-free asset,40 percent in the market portfolio,and the balance in a portfolio that has three times the risk of the market portfolio?
a) 0.4
b) 0.7
c) 1.3
d) 1.8

Question 73

What is the beta of a portfolio if 40 percent of the funds invested in the market portfolio are borrowed at the risk-free rate?
a) 0.60
b) 0.83
c) 1.40
d) 1.67

Question 74

Stock A has a standard deviation of 20 percent and a correlation coefficient of 0.64 with market returns.The expected return of the market is 12 percent with a standard deviation of 15 percent.The risk-free rate is 5 percent.What is the beta of Stock A?
a) 0.48
b) 0.75
c) 0.85
d) 1.33

Question 75

Use the following two statements to answer this question:
I)The characteristic line is a statistical approximation of the SML.
II)The SML ignores the non-systematic risk of a security.

A) I and II are correct
B) I is correct, II is incorrect
C) I and II are incorrect
D) I is incorrect and II is correct

Question 76

Assuming the CAPM is valid,_____________ securities lie _____________the security market line.

A) undervalued, below
B) overvalued, on
C) undervalued, on
D) overvalued, below

Question 77

The current price of Stock Y is $12.It is expected that the stock will pay an annual dividend of $0.60 and sell for $13.50 in one year.The risk-free rate is 6 percent.The expected return on the market portfolio is 14 percent with a standard deviation of 17 percent.Assume the market is in equilibrium.What is the beta of Stock Y?
a) 0.70
b) 0.96
c) 1.25
d) 1.44

Question 78

Suppose the beta of a four-asset portfolio is 1.8.The portfolio is composed of $1,500 invested in Stock W,$2,000 in Stock X,$2,500 in Stock Y,and $3,000 in Stock Z.What is the beta of Stock Z if the betas of Stock W,X,and Y are 0.7,1.3,and 2.5,respectively?
a) 0.7
B) 1.1
c) 1.6
d) 2.1

Question 79

Stock X has a standard deviation of 25 percent and a correlation coefficient of 0.7 with market returns.The expected return of the market is 12 percent with a standard deviation of 15 percent.The risk-free rate is 5 percent.What is the required return of Stock X?
a) 7.94%
b) 9.56%
c) 13.17%
d) 15.28%

Question 80

The beta of a portfolio can be calculated as:

A) A sum of the betas of the stocks in the portfolio.
B) The weighted sum of the betas in the portfolio.
C) The average of the betas in the portfolios.
D) The weighted sum of the betas plus the correlation between betas.