Which of the Following Statements Is CORRECT

question 3

Multiple Choice

Which of the following statements is CORRECT?

• A) A large portfolio of randomly selected stocks will always have a standard deviation of returns that is less than the standard deviation of a portfolio with fewer stocks,regardless of how the stocks in the smaller portfolio are selected.
• B) Diversifiable risk can be reduced by forming a large portfolio,but normally even highly-diversified portfolios are subject to market (or systematic)risk.
• C) A large portfolio of randomly selected stocks will have a standard deviation of returns that is greater than the standard deviation of a 1-stock portfolio if that one stock has a beta less than 1.0.
• D) A large portfolio of stocks whose betas are greater than 1.0 will have less market risk than a single stock with a beta = 0.8.
• 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:

Risk Premium

The extra return above the risk-free rate demanded by investors for holding riskier assets.

Expected Cost

The forecasted or anticipated cost of undertaking a project, investment, or any financial activity, considering all possible outcomes and their probabilities.

Expected Income

Expected income refers to the amount of money an individual anticipates earning over a specified future period, taking into account various factors such as salary, investments, and other sources of income.

Bank Book Value

The nominal value of a bank's assets minus its liabilities, as recorded on its balance sheet.