John has a portfolio consisting of equal proportions of 5 securities. Susan also has a portfolio of the same five securities but the weights of each security are not equal. Which of the statements below MUST be TRUE? a) Because Susan has an unequal distribution of securities, her portfolio beta must be greater than John's.

b) Because Susan has an unequal distribution of securities, her portfolio beta must be less than John's.

c) Without additional information, we cannot be certain whose portfolio beta is greater.

d) Because the portfolios contain the same securities, the beta of each portfolio must be the same.

c) Without additional information, we cannot be certain whose portfolio beta is greater.

Explanation:

When comparing portfolios of the same security composition but different weights we need to know the beta of each security in order to make a valid comparism between the two securities.

Beta is defined as a measure of the volatility of a security compared to the whole market. It considers the systemic risk and the expected returns from a security or portfolio.

In determining beta we compare against a particular benchmark.

Since more information is not given on the securities and their weights in the two portfolios we cannot determine which one has a higher beta.

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