Fundamentals of Financial Management Concise
Quiz 8: Risk and Rates of Return
A Stock with a Beta Equal to -1
A stock with a beta equal to -1.0 has zero systematic (or market)risk.
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It is possible for a firm to have a positive beta,even if the correlation between its returns and those of another firm is negative.
Portfolio A has but one security,while Portfolio B has 100 securities.Because of diversification effects,we would expect Portfolio B to have the lower risk.However,it is possible for Portfolio A to be less risky.
Portfolio A has only one stock,while Portfolio B consists of all stocks that trade in the market,each held in proportion to its market value.Because of its diversification,Portfolio B will by definition be riskless.
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