Using the Sharpe Single-Index Model with a Random Portfolio of U.S.common

question 12

Multiple Choice

Using the Sharpe single-index model with a random portfolio of U.S.common stocks,as one increases the number of stocks in the portfolio,the total risk of the portfolio will:

• A) approach zero.
• B) approach the portfolio's systematic risk.
• C) approach the portfolio's non-systematic risk.
• D) not be affected.

---

Definitions:

Dividend

A part of a company's profits distributed to its shareholders, typically every three months.

Required Return

The minimum expected rate of return on an investment necessary to compensate for the risk of the investment.

Beta

A measurement of the volatility of a stock or portfolio compared to the market as a whole.

Constant Rate

A fixed percentage or value used in calculations that does not change over the period in question.