Which of the Following Statements Is CORRECT

question 92

Multiple Choice

Which of the following statements is CORRECT?

• A) If the returns on two stocks are perfectly positively correlated and these stocks have identical standard deviations,an equally weighted portfolio of the two stocks will have a standard deviation that is less than that of the individual stocks.
• B) A portfolio with a large number of randomly selected stocks would have more market risk than a single stock that has a beta of 0.5,assuming that the stock's beta was correctly calculated and is stable.
• C) If a stock has a negative beta,its expected return must be negative.
• D) A portfolio with a large number of randomly selected stocks would have less market risk than a single stock that has a beta of 0.5.
• E) According to the CAPM,stocks with higher standard deviations of returns must also have higher expected returns.

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Definitions:

Chemical Change

A process that involves the reorganization of the atoms in one or more substances, resulting in the formation of new products with different properties.

Matter

Anything that occupies space and has mass.

Volume

The quantity of space taken up by a substance or object, or contained within a vessel.

Scientific Method

A systematic approach to inquiry that involves making observations, forming hypotheses, conducting experiments, and drawing conclusions.