If the Plotting of a Portfolio's Returns Against Returns on the Market

question 40

Multiple Choice

If the plotting of a portfolio's returns against returns on the market index produces a tight pattern, then:

• A)the portfolio appears to be well diversified.
• B)the portfolio has a Beta of 1.0.
• C)the portfolio has very little systematic risk.
• D)the portfolio has a very low market risk premium.

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Definitions:

Fair

An event or situation characterized by justice, equality, and impartiality, or an adjective describing such qualities.

Expect

To anticipate or regard as likely to happen in the future.

Random Variable

A variable whose values depend on outcomes of a random phenomenon, often used in probability and statistics.

Values

Fundamental beliefs or principles that guide behavior and decision-making.