Which of the Following Statements Is CORRECT

question 49

Multiple Choice

Which of the following statements is CORRECT?

• A) If you were restricted to investing in publicly traded common stocks, yet you wanted to minimize the riskiness of your portfolio as measured by its beta, then according to the CAPM theory you should invest an equal amount of money in each stock in the market.That is, if there were 10,000 traded stocks in the world, the least risky possible portfolio would include some shares of each one.
• B) If you formed a portfolio that consisted of all stocks with betas less than 1.0, which is about half of all stocks, the portfolio would itself have a beta coefficient that is equal to the weighted average beta of the stocks in the portfolio, and that portfolio would have less risk than a portfolio that consisted of all stocks in the market.
• C) Market risk can be eliminated by forming a large portfolio, and if some Treasury bonds are held in the portfolio, the portfolio can be made to be completely riskless.
• D) A portfolio that consists of all stocks in the market would have a required return that is equal to the riskless rate.
• E) If you add enough randomly selected stocks to a portfolio, you can completely eliminate all of the market risk from the portfolio.

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Definitions:

Implicit Associations

Implicit associations are unconscious links between concepts or objects and attitudes or stereotypes, revealing hidden biases and preferences.

Primacy Effect

The tendency to remember information at the beginning of a list better than information that comes later.

Impression Formation

The process by which individuals organize information about another person to form an overall impression of that person.

Primacy Effect

The tendency to remember and give more weight to information that we encounter first in a list or presentation.