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:

Cumulative Percent

The percentage that represents the sum of a category and all categories that are ranked lower in a frequency distribution.

Frequency Distribution

The organization of data into categories or intervals, showing the number of occurrences in each category.

Arrests

Refers to the act of detaining a person or persons, typically by legal authority, as a response to an alleged crime.

Variability

The extent to which data points in a statistical distribution or dataset differ from each other and from the central tendency.