Which of the Following Statements Is CORRECT

question 92

Multiple Choice

Which of the following statements is CORRECT?

• A) A portfolio with a large number of randomly selected stocks would have more market risk than a single stock that has a beta of 0.5, assuming that the stock's beta was correctly calculated and is stable.
• B) If a stock has a negative beta, its expected return must be negative.
• C) A portfolio with a large number of randomly selected stocks would have less market risk than a single stock that has a beta of 0.5.
• D) According to the CAPM, stocks with higher standard deviations of returns must also have higher expected returns.
• E) If the returns on two stocks are perfectly positively correlated (i.e., the correlation coefficient is +1.0) and these stocks have identical standard deviations, an equally weighted portfolio of the two stocks will have a standard deviation that is less than that of the individual stocks.

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Definitions:

Factor A

Typically used in experimental design, referring to a controlled variable that is manipulated to observe its effect on an outcome.

Levels

Distinct values that a categorical variable can have. In experimental design, it also refers to the treatments or conditions to which subjects are assigned.

Independent Variable

A factor or condition that is manipulated by the researcher to observe its effect on the dependent variable in an experiment.

Combinations

The selection of items from a larger set such that the order of selection does not matter.