Which of the following statements is correct?
A)If you add enough randomly selected stocks to a portfolio, you can completely eliminate all of the market risk from the portfolio.
B)If you formed a portfolio that consisted of all stocks with betas less than 1.0, 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.
C)Market risk can be eliminated by forming a large portfolio, and if some Treasury bonds are held in the portfolio, the portfolio can be made to be completely riskless.
D)A portfolio that consists of all stocks in the market would have a required return that is equal to the riskless rate.

Question

Quizplus · Accepted Answer

Forming a portfolio of stocks with betas less than 1.0 would result in a portfolio with less market risk than the overall market, but it would not eliminate all market risk. Adding Treasury bonds can lower the overall risk of the portfolio, but it cannot completely eliminate market risk. Additionally, a portfolio consisting of all stocks in the market would have a required return higher than the riskless rate because it is riskier. Therefore, only Option B is correct.

Which of the Following Statements Is Correct