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 form a large portfolio of stocks each with a beta greater than 1.0, this portfolio will have more market risk exposure than a single stock with a beta of 0.8. C. Company-specific (or unsystematic) risk can be reduced by forming a large portfolio, but normally even highly diversified portfolios are subject to market (or systematic) risk. D. Statements B and C are correct. E. All of the above statements are correct
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 form a large portfolio of stocks each with a beta greater than 1.0, this portfolio will have more market risk exposure than a single stock with a beta of 0.8. C. Company-specific (or unsystematic) risk can be reduced by forming a large portfolio, but normally even highly diversified portfolios are subject to market (or systematic) risk. D. Statements B and C are correct. E. All of the above statements are correct
Financial Management: Theory & Practice
16th Edition
ISBN:9781337909730
Author:Brigham
Publisher:Brigham
Chapter25: Portfolio Theory And Asset Pricing Models
Section: Chapter Questions
Problem 4MC: You have been hired at the investment firm of Bowers Noon. One of its clients doesnt understand the...
Related questions
Question
100%
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 form a large portfolio of stocks each with a beta greater than 1.0, this portfolio will have more market risk exposure than a single stock with a beta of 0.8.
C. Company-specific (or unsystematic) risk can be reduced by forming a large portfolio, but normally even highly diversified portfolios are subject to market (or systematic) risk.
D. Statements B and C are correct.
E. All of the above statements are correct.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Intermediate Financial Management (MindTap Course…
Finance
ISBN:
9781337395083
Author:
Eugene F. Brigham, Phillip R. Daves
Publisher:
Cengage Learning
Intermediate Financial Management (MindTap Course…
Finance
ISBN:
9781337395083
Author:
Eugene F. Brigham, Phillip R. Daves
Publisher:
Cengage Learning