Question about fully diversified, beta and return

This is from CFA Study Guide. For 2 portfolios A and B, both are fully diversified and have Beta=1. However, A’s stocks have higher specific risk and B’s have lower. Should we expect higher return from Portfolio A or B?

I think they are the same because the beta are both =1… But not sure… can anyone comment? Thanks!

January 23rd, 2009 in CFA - LEVEL 1, CFA - LEVEL 2, Question Posted by cfaking

3 Comments

johnJanuary 29th, 2009 at 6:09 am

I also think so. Because investors are not rewarded by the diversifiable specific risk. So, if they have the same beta (means the systematic risks are the same), then they should have the same expected return… Am I right?

fionaJanuary 30th, 2009 at 9:39 pm

agree!

arshad hasanFebruary 2nd, 2009 at 10:07 am

you are right

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