Which One of the Following Statements Is Correct Concerning a Portfolio

question 311

Multiple Choice

Which one of the following statements is correct concerning a portfolio which consists of a risk-free asset and four stocks with individual betas of 1.1, 1.4, 1.5, and 1.8?

• A) The beta of the portfolio must be greater than 1.0.
• B) The expected return on the portfolio is equal to the market rate of return.
• C) The portfolio can have more than, less than, or the same amount of systematic risk as the market.
• D) A portfolio comprised of these five securities will eliminate all of the diversifiable risk.
• E) The risk of the portfolio must be less than the market level of risk.

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Definitions:

Marginal Rates

The amount of change in a variable (often related to costs or taxes) associated with a one-unit change in another variable.

Utility Functions

Mathematical representations describing the level of satisfaction or utility that a consumer derives from consuming a good or combination of goods.

Equilibrium

A state of balance in a market, where demand equals supply, and economic forces are at rest.

Welfare Economics

Normative evaluation of markets and economic policy.