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

question 105

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 average of the betas of the individual stocks.
• D) The beta of the portfolio is equal to the average of the betas of the individual stocks.
• E) The beta of the portfolio is larger than the average of the betas of the individual stocks.

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Definitions:

Regression Model

A statistical technique that models and approximates the relationship between a dependent and one or more independent variables.

Nonlinear Relationship

A type of relationship between two variables where a change in one variable does not lead to a constant change in the other variable.

Stepwise Regression Analysis

A method of fitting regression models where the choice of predictive variables is carried out by an automatic procedure.

Independent Variables

Variables in an experiment or model that are manipulated or categorized to observe their effect on the dependent variable, without being affected by any other variable in the experiment.