Question
QUESTION 1 Part A: Which of the following statements is CORRECT? a. An investor can eliminate virtually all stand-alone risk if he or she holds
QUESTION 1
Part A: Which of the following statements is CORRECT?
a. An investor can eliminate virtually all stand-alone risk if he or she holds a very large and well diversified portfolio of stocks. | ||
b. The higher the correlation between the stocks in a portfolio, the lower the risk inherent in the portfolio. | ||
c. Once a portfolio has about 40 stocks, adding additional stocks will not reduce its risk by even a small amount. | ||
d. An investor can eliminate virtually all diversifiable risk if he or she holds a very large, well-diversified portfolio of stocks. | ||
e. It is impossible to have a situation where the market risk of a single stock is less than that of a portfolio that includes the stock. formuasheet.png |
Part B:
Which of the following is incorrect?
a. Add stocks with perfect correlation with each other will reduce the portfolio risk | ||
b. Combining 2 stocks that has a negative correlation with each other in a portfolio will reduce the portfolio risk. | ||
c. Combining 2 stocks that has a correlation of coefficient of 0.5 in a portfolio will reduce the portfolio risk. | ||
d. Add a stock that has the perfect correlation with the existing portfolio with each other will not reduce risk |
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