Ann Has a Portfolio of 20 Average Stocks, and Tom

question 124

Multiple Choice

Ann has a portfolio of 20 average stocks, and Tom has a portfolio of 2 average stocks.Assuming the market is in equilibrium, which of the following statements is CORRECT?

• A) The required return on Ann's portfolio will be lower than that on Tom's portfolio because Ann's portfolio will have less total risk.
• B) Tom's portfolio will have more diversifiable risk, the same market risk, and thus more total risk than Ann's portfolio, but the required (and expected)returns will be the same on both portfolios.
• C) If the two portfolios have the same beta, their required returns will be the same, but Ann's portfolio will have less market risk than Tom's.
• D) The expected return on Jane's portfolio must be lower than the expected return on Dick's portfolio because Jane is more diversified.
• E) Ann's portfolio will have less diversifiable risk and also less market risk than Tom's portfolio.

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