Which of the Following Statements Is CORRECT

question 92

Multiple Choice

Which of the following statements is CORRECT?

• A) If the returns on two stocks are perfectly positively correlated and these stocks have identical standard deviations,an equally weighted portfolio of the two stocks will have a standard deviation that is less than that of the individual stocks.
• B) A portfolio with a large number of randomly selected stocks would have more market risk than a single stock that has a beta of 0.5,assuming that the stock's beta was correctly calculated and is stable.
• C) If a stock has a negative beta,its expected return must be negative.
• D) A portfolio with a large number of randomly selected stocks would have less market risk than a single stock that has a beta of 0.5.
• E) According to the CAPM,stocks with higher standard deviations of returns must also have higher expected returns.

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Definitions:

Motivational Drives

Internal impulses that prompt action towards fulfilling a need or achieving a goal.

Expectancies

Beliefs about the potential outcomes of certain behaviors, which can influence an individual's decisions and actions.

Cognitive Factors

Elements that affect the processes of thinking, understanding, learning, and remembering.

Tension

A state of mental or emotional strain, often resulting from challenging or demanding circumstances.