Margaret has a portfolio consisting of a risk-free asset and a stock with a beta of 1.5. If she wishes to lower the overall beta of her portfolio Margaret could the portfolio weight of the risk-free asset and the portfolio weight of the stock. A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease
E) increase; not change

B

Explanation:

Beta measures systemic risk

Systemic risk are risk that are inherent in the economy. They cannot be diversified away. They are also known as market risk. examples of this risk include recession, inflation, and high interest rates.

The higher beta is, the higher the systemic risk and the higher the compensation demanded for by investors

the beta of a risk free asset is 1

If she wants to decrease the beta of her portfolio, she would want to decrease the riskiness of her portfolio. to do this, she should increase the weight of the risk-free asset and decrease the weight of the risky asset (stock)

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answer; someone must cover the cost associated with the provision of scarce goods in both sectors;