Which of the Following Statements Is Correct

question 36

Multiple Choice

Which of the following statements is correct?

• A) Portfolio diversification reduces the variability of the returns on the individual stocks held in the portfolio.
• B) If an investor buys enough stocks,he or she can,through diversification,eliminate virtually all of the nonmarket (or company-specific)risk inherent in owning stocks.Indeed,if the portfolio contained all publicly traded stocks,it would be riskless.
• C) The required return on a firm's common stock is determined by its systematic (or market)risk.If the systematic risk is known,and if that risk is expected to remain constant,then no other information is required to specify the firm's required return.
• D) A security's beta measures its nondiversifiable (systematic,or market)risk relative to that of an average stock.
• E) A stock's beta is less relevant as a measure of risk to an investor with a well-diversified portfolio than to an investor who holds only that one stock.

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Definitions:

Problem Solving

The process of identifying a problem, developing possible solution paths, and taking the appropriate course of action.

Behaviorism

A school of psychology that seeks to define psychological research in terms of observable measures emphasizing the scientific study of behavior.

Objectivity

The quality of being unbiased, unprejudiced, and based on observable phenomena and facts.

Research Methods

Systematic procedures for collecting and analyzing data to increase understanding of a topic or issue.