Question: QUESTION 16 If an investor buys at least 50 stocks from different industries, he or she can, through diversification, eliminate all of the company-specific risk

QUESTION 16

  1. If an investor buys at least 50 stocks from different industries, he or she can, through diversification, eliminate all of the company-specific risk inherent in owning stocks, but as a general rule it will not be possible to eliminate all market (systematic) risk.

    True

    False

3.5 points

QUESTION 17

  1. Stock A's beta is 0.5 and Stock B's beta is 1.5. Which of the following statements must be true about these securities? (Assume market equilibrium.)

    When held in isolation, Stock A has greater risk than Stock B.

    Stock B must be a more desirable addition to a portfolio than Stock A.

    Stock A must be a more desirable addition to a portfolio than Stock B.

    The expected return on Stock A should be greater than that on Stock B.

    The expected return on Stock B should be greater than that on Stock A.

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