1. Which of the following statements is CORRECT?
a. If you add enough randomly selected stocks to a portfolio, youcan completely eliminate all of the market risk from theportfolio.
b. If you were restricted to investing in publicly traded commonstocks, yet you wanted to minimize the riskiness of your portfolioas measured by its beta, then according to the CAPM theory youshould invest an equal amount of money in each stock in the market.That is, if there were 10,000 traded stocks in the world, the leastrisky possible portfolio would include some shares of each one.
c. If you formed a portfolio that consisted of all stocks withbetas less than 1.0, which is about half of all stocks, theportfolio would itself have a beta coefficient that is equal to theweighted average beta of the stocks in the portfolio, and thatportfolio would have less risk than a portfolio that consisted ofall stocks in the market.
d. Market risk can be eliminated by forming a large portfolio, andif some Treasury bonds are held in the portfolio, the portfolio canbe made to be completely riskless.
e. A portfolio that consists of all stocks in the market would havea required return that is equal to the riskless rate.
ScholarMatic: Explanation & Answer
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