Which of the Following Statements Is Most Correct

question 56

Multiple Choice

Which of the following statements is most correct?

• A)If you add enough randomly selected stocks to a portfolio, you can completely eliminate all the market risk from the portfolio
• B)If you formed a portfolio which included a large number of low beta stocks (stocks with betas less than 1.0 but greater than −1.0), the portfolio would itself have a beta coefficient that is equal to the weighted average beta of the stocks in the portfolio, so the portfolio would have a relatively low degree of risk.
• C)If you were restricted to investing in publicly traded common stocks, yet you wanted to minimize the riskiness of your portfolio as measure by its beta, then, according to the CAPM theory, you should invest some of your money in each stock in the market, i.e., if there were 10,000 traded stocks in the world, the least risky portfolio would include some shares in each of them.
• D)Company specific (or unsystematic) risk can be eliminated by forming a large portfolio, but normally even highly diversified portfolios are subject to market (or systematic) risk.
• E)Statements b and d are both correct.

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Definitions:

Temper Tantrums

Emotional outbursts, typically seen in children, characterized by yelling, crying, and sometimes physical behaviors like kicking or throwing objects as a reaction to frustration or anger.

Toddlers

Young children who are just beginning to walk, generally aged between one and three years.

Behaviours

Observable actions or reactions of individuals or groups in response to external or internal stimuli.

Complexity

The state or quality of being intricate or complicated, often referring to systems, processes, or issues with multiple interrelated parts.