Which of the Following Statements Is CORRECT

question 86

Multiple Choice

Which of the following statements is CORRECT?

• A) If an investor buys enough stocks, he or she can, through diversification, eliminate all of the diversifiable risk inherent in owning stocks.Therefore, if a portfolio contained all publicly traded stocks, it would be essentially riskless.
• B) The required return on a firm's common stock is, in theory, determined solely by its market risk.If the market 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.
• C) Portfolio diversification reduces the variability of returns (as measured by the standard deviation) of each individual stock held in a portfolio.
• D) A security's beta measures its non-diversifiable, 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:

Quantity

The amount or number of a material or immaterial good or service.

Tariff

A tax imposed by a government on imported goods, often used to protect domestic industries and adjust trade balances.

Carnations

A species of flowering plant in the Dianthus genus, often used in bouquets and floral arrangements.

Imported

Brought into a country from abroad for sale.