Jane Holds a Large Diversified Portfolio of 100 Randomly Selected

question 17

Multiple Choice

Jane holds a large diversified portfolio of 100 randomly selected stocks and the portfolio's beta = 1.2. Each of the individual stocks in her portfolio has a standard deviation of 20 percent. Jack has the same amount of money invested in a single stock with a beta equal to 1.6 and a standard deviation of 20 percent. Which of the following statements is most correct?

• A) Jane's portfolio has a larger amount of company-specific risk since she is holding more stocks in her portfolio.
• B) Jane has a higher required rate of return, since she is more diversified.
• C) Jane's portfolio has less market risk since it has a lower beta.
• D) Statements b and c are correct.
• E) None of the statements above is correct.

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Definitions:

Financial Data

Information related to the financial performance of a company, including income statements, balance sheets, cash flow statements, and more.

Dividends Per Share

A profitability ratio that measures the extent to which earnings are being distributed to common shareholders, computed as dividends on common stock divided by shares of common stock outstanding.

Earnings Retention

The portion of net income that is retained by the corporation rather than distributed to its owners as dividends.

Discontinues

The process of ceasing production, support, or sale of a product or service.