Which of the Following Statements Is Most Correct

question 40

Multiple Choice

Which of the following statements is most correct?

• A) If the returns from two stocks are perfectly positively correlated and the two stocks have equal variance, an equally weighted portfolio of the two stocks will have a variance which is less than that of the individual stocks.
• B) If a stock has a negative beta, its expected return must be negative.
• C) According to the CAPM, stocks with higher standard deviations of returns will have higher expected returns.
• D) A portfolio with a large number of randomly selected stocks will have less market risk than a single stock which has a beta equal to 0.5.
• E) None of the statements above is correct.

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Definitions:

Cash Dividends

Payments made by a corporation to its shareholders out of the company's current or retained earnings.

Beginning Balance

The amount of money in an account at the start of a new accounting period, carried over from the end of the previous period.

Ending Balance

The final amount in an account at the end of a reporting period after all debits and credits have been accounted for.

Minimum Legal Capital

The least amount of capital that must be raised through the issue of shares for a corporation to be legally established.