Accredited Wealth Management Advisor Practice Exam

To determine the weighted-average beta of Wilson's stock portfolio, you first need to understand what beta is and how it is calculated. Beta measures a stock's volatility relative to the overall market; a beta greater than 1 indicates that the stock is more volatile than the market, while a beta less than 1 indicates less volatility.

The weighted-average beta is calculated by taking the beta for each stock in the portfolio, multiplying it by the proportion of the total investment that each stock represents, and then summing these products. This provides a composite measure of the portfolio's risk relative to the market, reflecting the combined influence of each stock's individual beta based on its weight in the portfolio.

In this case, the calculated weighted-average beta results in a value of 1.23, indicating an overall portfolio risk level that is slightly higher than the market average. This means that Wilson's portfolio, on average, tends to be more volatile than the market, aligning with the assessment of stocks he may have chosen or the specific weights assigned to those investments.

Each stock's beta and its proportionate weight in the portfolio play a crucial role in this final calculation, leading to the conclusion that 1.23 captures the portfolio's exposure to systematic risk effectively.