Which of the following statements is CORRECT?
A. A large portfolio of randomly selected stocks will always have a standard deviation of returns that is less than the standard deviation of a portfolio with fewer stocks, regardless of how the stocks in the smaller portfolio are selected.
B. Diversifiable risk can be reduced by forming a large portfolio, but normally even highly-diversified portfolios are subject to market (or systematic) risk.
C. A large portfolio of randomly selected stocks will have a standard deviation of returns that is greater than the standard deviation of a 1-stock portfolio if that one stock has a beta less than 1.0.
D. A large portfolio of stocks whose betas are greater than 1.0 will have less market risk than a single stock with a beta = 0.8.
E. If you add enough randomly selected stocks to a portfolio, you can completely eliminate all of the market risk from the portfolio.
Answer: B
You might also like to view...
Roberto, the marketing manager of Absola Foods Co., a food processing company, reduces the prices of the firm's line of breakfast cereals in an attempt to increase the number of products sold. However, contrary to Roberto's prediction, sales of the breakfast cereals drop, and upon further investigation, Roberto discovers that the company's target consumers are buying more expensive competitor brands instead of Absola food products. Which of the following could be a possible explanation for this?
A. The company didn't cut the prices low enough. B. Most of the consumers were repeat customers. C. Most of the customers were bargain seekers. D. The consumers perceived the higher priced products as having better quality. E. Customers that went to the competition were price sensitive.
Which of the following is not a function of the Insurance Services Office (ISO)?
A) Collecting loss data B) Developing standard insurance policies C) Coordinating prices between insurance companies D) Providing public information about insurance
All of the following are cautions of pragmatism EXCEPT:
A. lacks a moral center B. can lead to undesirable decisions C. assures that communities will develop similar standards D. measuring growth is difficult
A portfolio is a collection of several different types of investments
Indicate whether the statement is true or false