For a Portfolio of 40 Randomly Selected Stocks,which of the Following

question 25

Multiple Choice

For a portfolio of 40 randomly selected stocks,which of the following is most likely to be true?

• A) The riskiness of the portfolio is greater than the riskiness of each of the stocks if each was held in isolation.
• B) The riskiness of the portfolio is the same as the riskiness of each stock if it was held in isolation.
• C) The beta of the portfolio is less than the weighted average of the betas of the individual stocks.
• D) The beta of the portfolio is equal to the weighted average of the betas of the individual stocks.
• E) The beta of the portfolio is larger than the weighted average of the betas of the individual stocks.

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Definitions:

Sherman Act

A landmark federal statute in U.S. antitrust law prohibiting monopolistic business practices and ensuring competition.

Monopoly

A market structure characterized by a single seller who has total control over a particular product or service.

Market Share

A firm’s fractional share of the relevant market.

Antitrust Violation

An action or behavior that violates laws designed to promote competition and protect consumers and the market from unfair business practices, such as monopolies or cartels.