Which of the Following Statements Is CORRECT

question 67

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:

Perfect Competitor

A theoretical market scenario where numerous small firms sell identical products, allowing no single firm to influence the market.

Marginal Revenue

The extra income a company earns by selling an additional unit of a product or service.

Marginal Cost

The extra expense related to the production of an additional unit of a good or service.

Marginal Revenue

The additional income produced from the sale of one more unit of a product or service.