Which of the Following Statements Is Most Correct

question 65

Multiple Choice

Which of the following statements is most correct?

• A) If you add enough randomly selected stocks to a portfolio,you can completely eliminate all the market risk from the portfolio.
• B) If you formed a portfolio which included a large number of low beta stocks (stocks with betas less than 1.0 but greater than −1.0),the portfolio would itself have a beta coefficient that is equal to the weighted average beta of the stocks in the portfolio,so the portfolio would have a relatively low degree of risk.
• C) If you were restricted to investing in publicly traded common stocks,yet you wanted to minimize the riskiness of your portfolio as measured by its beta,then,according to the CAPM theory,you should invest some of your money in each stock in the market,i.e. ,if there were 10,000 traded stocks in the world,the least risky portfolio would include some shares in each of them.
• D) Company-specific (or unsystematic)risk can be eliminated by forming a large portfolio,but normally even highly diversified portfolios are subject to market (or systematic)risk.
• E) Statements b and d are both correct.

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Definitions:

Net Operating Working Capital

The difference between a company's current assets and its current liabilities, excluding interest-bearing debt.

Working Capital Policy

It refers to the strategy a company employs to manage its current assets and liabilities to ensure it has enough liquidity to run its operations efficiently.

Accounts Payable

Short-term financial obligations that a company owes to its suppliers or vendors for goods and services received.

Trade Credit Discounts

Reductions in price offered by suppliers to buyers as an incentive for early payment within a specified period.