True or False. Place a check mark or ‘X’ in either the True or False column to i

Question

True or False. Place a check mark or ‘X’ in either the True or False column to indicate your answer.

True          False

In order for there to be a benefit to including two stocks in a portfolio, the returns of those stocks must be negatively correlated.

The risk that is reduced as a result of diversification is systemic risk.

A portfolio’s expected return is the weighted average of the expected returns of the stocks in the portfolio.

A portfolio’s Standard Deviation of expected return is the weighted average of the Standard Deviations of expected returns of the stocks in the portfolio.

A portfolio’s market risk cannot be reduced as a result of diversification.

Beta is a measure of random, non-systemic risk.

In equilibrium, the return-to-risk ratios of all well-diversified portfolios will be equal.

The returns of a stock with a Beta = .75 will be higher than the overall market returns when the economy is in recession.

If there is no benefit to diversification between two stocks, their correlation coefficient must be equal to -1.

Stock A has a beta of 1.2 and E(R) of 8.4%. Stock B has a beta of 1.6 and E(R) of 11.5%. It should be expected that the price of stock A will decrease.

Explanation / Answer

The answers in sequence are

False

False

True

False

False

False

False

True

False

False

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