Jane Has a Portfolio of 20 Average Stocks,and Dick Has

question 75

Multiple Choice

Jane has a portfolio of 20 average stocks,and Dick has a portfolio of 2 average stocks.Assuming the market is in equilibrium,which of the following statements is CORRECT?

• A) Jane's portfolio will have less diversifiable risk and also less market risk than Dick's portfolio.
• B) The required return on Jane's portfolio will be lower than that on Dick's portfolio because Jane's portfolio will have less total risk.
• C) Dick's portfolio will have more diversifiable risk,the same market risk,and thus more total risk than Jane's portfolio,but the required (and expected)returns will be the same on both portfolios.
• D) If the two portfolios have the same beta,their required returns will be the same,but Jane's portfolio will have less market risk than Dick's.
• E) The expected return on Jane's portfolio must be lower than the expected return on Dick's portfolio because Jane is more diversified.

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Definitions:

Movement

In economics, this can refer to changes in market conditions, such as price movements, or the migration of people or capital between regions or sectors.

Excess Supply

A situation where the quantity of a product offered for sale exceeds the quantity demanded at the current price, often leading to a decrease in price.

Market Equilibrium

Market Equilibrium is the point where the quantity of a good or service supplied equals the quantity demanded, leading to a stable market price.

Quantity Demanded

The total amount of a good or service that consumers are willing and able to purchase at a specific price.