Which of the Following Statements Is Most Correct

question 47

Multiple Choice

Which of the following statements is most correct?

• A) If you add enough randomly selected stocks to a portfolio, you can completely eliminate all the market risk from the portfolio.
• B) If you form a large portfolio of stocks each with a beta greater than 1.0, this portfolio will have more market risk than a single stock with a beta = 0.8.
• C) Company-specific (or unsystematic) risk can be reduced by forming a large portfolio, but normally even highly diversified portfolios are subject to market (or systematic) risk.
• D) Answers a, b, and c are correct.
• E) Answers b and c are correct.

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Definitions:

Short Run

A period in which at least one of a firm's inputs is fixed and cannot be varied.

Variable Costs

Expenses that directly fluctuate in accordance with the amount of production or output.

Average Cost

The total cost of production divided by the number of units produced, indicating the cost per unit.

Fixed Costs

Costs that do not vary with the level of production or business activity, such as rent, salaries, and insurance.