Which of the Following Statements About Diversification Is Correct

question 59

Multiple Choice

Which of the following statements about diversification is correct?

• A)Portfolio diversification reduces the variability of returns on an individual stock.
• B)When the company specific risk has been diversified, the inherent risk that remains is the market risk, which is constant for all securities in the market.
• C)A stock with a beta of −1.0 has maximum nondiversifiable risk.
• D)When two perfectly positively correlated stocks with the same risk are combined, the portfolio risk is equal to the risk associated with the individual stocks.
• E)The systematic risk of a stock with a beta of zero is equal to its unsystematic risk.

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Definitions:

Scatter Diagram

A graphical representation used in statistics to show the relationship between two variables, displaying points at which a variable occurs.

Change in Units

The difference in the number of units, items, or parts between two periods, often used in inventory, production, or sales analysis.

Break-Even Point

The level of production or sales at which total costs equal total revenues, leading to no net loss or gain.

Units

Individual components or quantities considered as part of a whole, often used in the context of production or sales.