Ann Has a Portfolio of 20 Average Stocks, and Tom

question 46

Multiple Choice

Ann has a portfolio of 20 average stocks, and Tom has a portfolio of 2 average stocks.Assuming the market is in equilibrium, which of the following statements is CORRECT?

• A) The required return on Ann's portfolio will be lower than that on Tom's portfolio because Ann's portfolio will have less total risk.
• B) Tom's portfolio will have more diversifiable risk, the same market risk, and thus more total risk than Ann's portfolio, but the required (and expected) returns will be the same on both portfolios.
• C) If the two portfolios have the same beta, their required returns will be the same, but Ann's portfolio will have less market risk than Tom's.
• D) The expected return on Jane's portfolio must be lower than the expected return on Dick's portfolio because Jane is more diversified.
• E) Ann's portfolio will have less diversifiable risk and also less market risk than Tom's portfolio.

---

Definitions:

Adler

Alfred Adler, an Austrian medical doctor, psychotherapist, and founder of the school of individual psychology.

Childhood Inferiorities

Feelings of inadequacy believed to begin in childhood, which can influence adult behavior and personality, as per theories in psychology, notably by Alfred Adler.

Extraversion-Introversion

A personality dimension that describes the extent to which an individual is outgoing and enjoys social interaction versus being more reserved and solitary.

Jung

Carl Jung, a Swiss psychiatrist and psychoanalyst who founded analytical psychology, known for concepts like archetypes and the collective unconscious.