Answer 1 points 1 points 1 points a. A large portfolio of randomly selected stoc

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a. 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. b. If you add enough randomly selected stocks to a portfolio, you can completely eliminate all of the market risk from the portfolio. c. 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. d. Diversifiable risk can be reduced by forming a large portfolio, but normally even highly-diversified portfolios are subject to market (or systematic) risk. e. 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.

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5.d. Diversifiable risk can be reduced by forming a large portfolio, but normally even highly-diversified portfolios are subject to market (or systematic) risk. 6.b. Portfolio ABC's expected return is 10.66667%. 7. b. Your portfolio has a beta equal to 1.6, and its expected return is 15%. 8. e. If a stock has a negative beta, its required return under the CAPM would be less than 5%.

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