Author Question: Which of the following statements is correct? (Read 3 times)

mmmmm · **on:** Aug 7, 2023

Which of the following statements is correct?

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Even if you add enough randomly selected stocks to a portfolio, you can never eliminate all of the company-specific risk from the portfolio.

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If you were restricted to investing in publicly traded common stocks, yet you wanted to minimize the riskiness of your portfolio as measured by its beta, then according to the CAPM theory you should invest an equal amount of money in each stock in the market. That is, if there were 100,000 traded stocks in the world, the least risky possible portfolio would include some shares of each one.

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If you formed a portfolio that consisted of all stocks with betas less than 0.9, which is about half of all stocks, the portfolio 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 portfolio that consisted of all stocks in the market.

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A portfolio that consists of all stocks in the market would have a required return that is less than the risk-free rate.

brunoanthony · **Reply #1 on:** Aug 7, 2023

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