Which of the Following Statements Is CORRECT

question 70

Multiple Choice

Which of the following statements is CORRECT?

• A)The higher the correlation between the stocks in a portfolio, the lower the risk inherent in the portfolio.
• B)It is impossible to have a situation where the market risk of a single stock is less than that of a portfolio that includes the stock.
• C)Once a portfolio has about 40 stocks, adding additional stocks will not reduce its risk by even a small amount.
• D)An investor can eliminate virtually all diversifiable risk if he or she holds a very large, well-diversified portfolio of stocks.
• E)An investor can eliminate virtually all market risk if he or she holds a very large and well-diversified portfolio of stocks.

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Definitions:

Prudent Investor Rule

An investment manager must act in accord with the actions of a hypothetical prudent investor.

Professional Investors

Individuals or entities that earn a living by managing and investing in various securities and asset classes on behalf of themselves or others.

Institutional Investors

Entities such as pension funds, insurance companies, and mutual funds that invest large sums of money on behalf of individuals.

Precious Metals

Metals of high economic value such as gold, silver, platinum, and palladium, often used in jewelry, industrial applications, and as investment.