Imposing the No-Arbitrage Condition on a Single-Factor Security Market Implies

question 4

Multiple Choice

Imposing the no-arbitrage condition on a single-factor security market implies which of the following statements?
I.the expected return-beta relationship is maintained for all but a small number of well-diversified portfolios.
II.the expected return-beta relationship is maintained for all well-diversified portfolios.
III.the expected return-beta relationship is maintained for all but a small number of individual securities.
IV.the expected return-beta relationship is maintained for all individual securities.

• A)I and III are correct.
• B)I and IV are correct.
• C)II and III are correct.
• D)II and IV are correct.
• E)Only I is correct.

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Definitions:

Unconscious Drives

Motivations for behavior that an individual is not fully aware of, often stemming from hidden or repressed desires.

Psychoanalytic Theory

A conceptual framework developed by Sigmund Freud that describes the structure of personality and the forces that shape personality development, serving as the foundation for psychoanalysis.

Cognitive Theory

A theory of psychology that emphasizes mental processes such as perception, memory, decision-making, and problem-solving as the basis of understanding behavior.

Unconscious Drives

Deep-seated motives and desires that influence an individual's thoughts and behaviors, often without their conscious awareness, rooted in Freudian psychology.