In a Portfolio of Three Randomly Selected Stocks, Which of the Following

question 16

Multiple Choice

In a portfolio of three randomly selected stocks, which of the following could NOT be true; i.e., which statement is false?

• A) The standard deviation of the portfolio is greater than the standard deviation of one or two of the stocks.
• B) The beta of the portfolio is lower than the lowest of the three betas.
• C) The beta of the portfolio is equal to one of the three stock's betas.
• D) The beta of the portfolio is equal to 1.
• E) The standard deviation of the portfolio is less than the standard deviation of each of the stocks if they were held in isolation.

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Definitions:

Diminishing Marginal Utility

The principle that as an individual consumes more of a good, the utility (satisfaction or benefit) gained from each additional unit decreases.

Total Utility

The overall satisfaction or value a consumer receives from consuming a particular quantity of a good or service.

Marginal Utility

The extra pleasure or benefit obtained from consuming an extra unit of a product or service.

Total Utility

The complete gratification gained from the use of a certain quantity of goods or services.