Which of the Following Statements Is True Regarding the Risk

question 56

Multiple Choice

Which of the following statements is true regarding the risk and return a U.S. investor would have experienced if she had invested in foreign stocks during the period from 1986 to 2005?

• A)Although foreign stocks would have increased her portfolio returns, the risk would have increased significantly as well.
• B)Foreign stocks did not perform as well as U.S. stocks during this period when the relative risk is considered.
• C)The beta of her overall portfolio would have increased had she invested in foreign stocks in addition to investing in U.S. stocks.
• D)An investment in a majority of the countries would have outperformed what she should have expected to earn on a risk-adjusted basis, using the CAPM as the benchmark.

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Definitions:

Temporary Accounts

Accounts used to track transactions within a fiscal period that are then reset to zero at the start of the next period, such as revenue and expense accounts.

Retained Earnings

Part of shareholders' equity on a company's balance sheet, representing the amount of net income left over for the business after it has paid out dividends to its shareholders.

Control Account

An account used in the general ledger to summarize the balances of subsidiary accounts and facilitate the verification of financial information accuracy.

Customer Account Balances

The amounts owed to a company by its customers for goods or services delivered on credit.