Has a Portfolio of 20 Average Stocks, and Dick Has

question 11

Multiple Choice

has a portfolio of 20 average stocks, and Dick has a portfolio of 2 average stocks.Assuming the market is in equilibrium, which of the following statements is CORRECT?

• A)Jane's portfolio will have less diversifiable risk and also less market risk than Dick's portfolio.
• B)The required return on Jane's portfolio will be lower than that on Dick's portfolio because Jane's portfolio will have less total risk.
• C)Dick's portfolio will have more diversifiable risk, the same market risk, and thus more total risk than Jane's portfolio, but the required (and expected) returns will be the same on both portfolios.
• D)If the two portfolios have the same beta, their required returns will be the same, but Jane's portfolio will have less market risk than Dick's.
• E)The expected return on Jane's portfolio must be lower than the expected return on Dick's portfolio because Jane is more diversified.

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Definitions:

Opposite Direction

A term indicating movement, action, or orientation in a direction that is reverse to another specified direction.

Same Direction

Implies movements or actions that are aligned in a parallel trajectory or orientation towards a similar goal or outcome.

Color Constancy

The psychological feature that allows the human brain to perceive colors consistently under varying lighting conditions.

Light Waves

Electromagnetic waves that are visible to the human eye, responsible for the phenomenon of light.