Which of the Following Statements Is FALSE

question 57

Multiple Choice

Which of the following statements is FALSE?

• A)The volatility declines as the number of stocks in a portfolio grows.
• B)An equally weighted portfolio is a portfolio in which the same amount is invested in each stock.
• C)As the number of stocks in a portfolio grows large,the variance of the portfolio is determined primarily by the average covariance among the stocks.
• D)When combining stocks into a portfolio that puts positive weight on each stock,unless all of the stocks are uncorrelated with the portfolio,the risk of the portfolio will be lower than the weighted average volatility of the individual stocks.

Understand the fundamentals of the Capital Asset Pricing Model (CAPM) including the definition of alpha (α) and beta (β).

Identify and interpret regression parameters in financial analysis, especially beta adjustments and the intercept values.

Grasp the concepts of diversification, systematic risk, and unsystematic risk in portfolio management.

Recognize the use of regression analysis in estimating the index model for stocks.

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