ID: A 12 Which of the lowing t is CORRECT Ir you enough ndomly selectod stocks to a portfolio, you can 1 of the market mk from the portfolio yoa were restricted to investing in publicly traded cosmon stocks, yet you cge te tiskiness of yoor portfolio as measured by its beta, then according to the to CAPM theory Thar is if there were 10,000 traded stocls in the wodld, the least risky possible portfolio yoa should invest ao equal amount of moncy in each stock in the market would include soue shares of cach one lr you formed a portfolio that consisted of all stocks with betas less than 1.0, which is aboot half of all stocks, the portdotio would itself have a beta coefficient that is equal to the weighted average beta of the stocks in the portfolio, and that portfolio would have less risk than a poctfolio that consisted of all stocks in the market. (O Market risk ca be eliminated by forming a large portfotio, and if some Treasury boods are held in the portfoio, the portfolio can be made to be comipletely riskless e A potfolio that consists of all stocks in the market would have a required retarn that is equal lo the riskless rate 13. Which of the following statements is CORRECT a An investor can eliminate virtually all market risk if he or she holds a very large and well diversified portfoho of stocks b. The higher the correlation between the stocks in a portfolio, the lower the risk inherent in the portfolio. c. Ir is impossible to have a situation where the market risk of a single stock is less than that d. Once a portfolio has about 40 stocks, adding additional stocks will not reduce its risk by of a portfolio that includes the stock even a small amount An investor can eliminate virtually all diversifiable risk if he or she holds a very large, well-diversified portfolio of stocks The MacMillen Company has equal amounts of low-risk, average-risk, and high-risk projects. The firm overall WACC is 12%. The CEO believes that this is the correct wACC for the company's average-ns but that a lower rate should be used for lower-risk projects and a higher rate for higher-risk p The CEO disagrees, on the grounds that even though projects have different risks, the WACC used to evaluate each project should be the same because the company obtains capital for all projects from th 14. If the CEO's position is accepted, what is likely to happen over time? The company will take on too many high-risk projects and reject too many low-risk projects b. The company will take on too many low-risk projects and reject too many high-risk projects Things will generally even out over time, and, therefore, the firm's risk should remain constant over time The company's overall WACC should decrease over time because its stock price should be increasing c d. e. The CEO's recommendation would maximize the firm's intrinsic value
