Which of the Following Statements Is CORRECT

question 3

Multiple Choice

Which of the following statements is CORRECT?

• A) A large portfolio of randomly selected stocks will always have a standard deviation of returns that is less than the standard deviation of a portfolio with fewer stocks,regardless of how the stocks in the smaller portfolio are selected.
• B) Diversifiable risk can be reduced by forming a large portfolio,but normally even highly-diversified portfolios are subject to market (or systematic)risk.
• C) A large portfolio of randomly selected stocks will have a standard deviation of returns that is greater than the standard deviation of a 1-stock portfolio if that one stock has a beta less than 1.0.
• D) A large portfolio of stocks whose betas are greater than 1.0 will have less market risk than a single stock with a beta = 0.8.
• E) If you add enough randomly selected stocks to a portfolio,you can completely eliminate all of the market risk from the portfolio.

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Definitions:

Net Investment

The purchase of capital assets minus depreciation, representing the total amount invested in assets for generating income.

Recognised Asset

An item of economic value that is accounted for and reported on a company's financial statements, meeting specific recognition criteria.

Foreign Exchange Gain

Profit from favourable changes in exchange rates affecting the value of currency positions.

Interest Expense

The cost incurred by an entity for borrowed funds over a period of time, often reported on the income statement.