For a Portfolio of 40 Randomly Selected Stocks,which of the Following

question 25

Multiple Choice

For a portfolio of 40 randomly selected stocks,which of the following is most likely to be true?

• A) The riskiness of the portfolio is greater than the riskiness of each of the stocks if each was held in isolation.
• B) The riskiness of the portfolio is the same as the riskiness of each stock if it was held in isolation.
• C) The beta of the portfolio is less than the weighted average of the betas of the individual stocks.
• D) The beta of the portfolio is equal to the weighted average of the betas of the individual stocks.
• E) The beta of the portfolio is larger than the weighted average of the betas of the individual stocks.

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Definitions:

Federal Reserve

The central bank of the United States, responsible for monetary policy, regulation of financial institutions, and ensuring the stability of the financial system.

Liquidity Trap

An environment characterized by high savings rates and low interest rates, which renders efforts to stimulate economic growth through monetary policy ineffective.

Reserve Ratio

The Reserve Ratio is the fraction of total deposits that a bank is required to hold in reserve and not lend out, a critical tool in monetary policy used to control the money supply.

Deposit Expansion Multiplier

A ratio that measures the maximum amount of money a bank can create with a given level of reserves.