Which of the Following Statements Is CORRECT

question 100

Multiple Choice

Which of the following statements is CORRECT?

• A) If you add enough randomly selected stocks to a portfolio,you can completely eliminate all of the market risk from the portfolio.
• B) If you were restricted to investing in publicly traded common stocks,yet you wanted to minimize the riskiness of your portfolio as measured by its beta,then according to the CAPM theory you should invest an equal amount of money in each stock in the market.That is,if there were 10,000 traded stocks in the world,the least risky possible portfolio would include some shares of each one.
• C) If you formed a portfolio that consisted of all stocks with betas less than 1.0,which is about half of all stocks,the portfolio would itself have a beta coefficient that is equal to the weighted average beta of the stocks in the portfolio,and that portfolio would have less risk than a portfolio that consisted of all stocks in the market.
• D) Market risk can be eliminated by forming a large portfolio,and if some Treasury bonds are held in the portfolio,the portfolio can be made to be completely riskless.
• E) A portfolio that consists of all stocks in the market would have a required return that is equal to the riskless rate.

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Definitions:

Useful Service Life

The estimated period over which a fixed asset is expected to be usable by the company.

Straight-line Method

A depreciation method that allocates an equal amount of depreciation each year over the useful life of an asset.

Depreciable Assets

Assets whose cost is allocated over their useful lives due to usage, wear and tear, or obsolescence.

Annual Depreciation

The portion of an asset's cost that is allocated as an expense each year over its useful life through the process of depreciation.