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

question 48

Multiple Choice

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

• A) appears to be well diversified.
• B) has a beta of 0.
• C) has very little systematic risk.
• D) has a risk premium lower than the market.

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Definitions:

Industry Firms

Companies or businesses that operate within a specific sector of the economy, producing goods or services related to that sector.

Ceiling Price

A maximum legal price set by the government on certain goods or services to prevent prices from rising above a certain level.

Quantity Demanded

The total amount of a good or service that consumers are willing and able to purchase at a specific price.

Black Market

An illegal trade of goods or services conducted outside the authorization of the official regulatory framework, often to avoid taxes or due to the illicit nature of the goods.