Which of the Following Statements Is Correct

question 45

Multiple Choice

Which of the following statements is correct?

• A) If the returns from two stocks are perfectly positively correlated and the two stocks have equal variance,an equally weighted portfolio of the two stocks will have a variance which is less than that of the individual stocks.
• B) If a stock has a negative beta,its expected return must be negative.
• C) According to the CAPM,stocks with higher standard deviations of returns will have higher expected returns.
• D) A portfolio with a large number of randomly selected stocks will have less market risk than a single stock which has a beta equal to 0.5.
• E) None of the above statements is correct.

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Definitions:

Market Power

The ability of a company or entity to influence the price and output levels in a market.

Market Shares

The portion of a market controlled by a particular company or product, often expressed as a percentage of total sales in the sector.

Herfindahl Index

An indicator of company sizes within an industry, showing the level of competitive interaction among them.