Question

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9. Effects of portfolio size on portfolio risk Aa Aa The following graph plots portfolio risk against the size of the portfolio as measured by the number of stocks in the portfolio. (Hint: Hover the mouse over the graph to read the coordinates.) PORTFOLIO RISK 50 40 30 20 10 0 10 20 30 40 50 60 70 80 90 100 NUMBER OF STOCKS IN THE PORTFOLIO Based on the data presented in the previous graph, which of the following statements are true? Check all that apply As the portfolio size increases, its market risk remains constant. Diversifiable risk lies below ơ-2096 The risk of a portfolio consisting of large-company stocks approaches a limit of 20% A portfolio of 40 stocks has a total risk of 28% All stocks are equally risky, and adding them to a portfolio will increase the portfolio's risk The benchmark for a well-diversified stock portfolio is the market portfolio, which is a portfolio containing all stocks. The relevant risk of an individual stock is measured by its beta coefficient, which is defined under the Capital Asset Pricing Model (CAPM) as the amount of risk that the stock contributes to the well-diversified portfolio Based on your understanding of the CAPM and beta, answer the following question: Which of the following statements about beta is true? A stock with a high standard deviation will tend to have a high beta A stock with a high standard deviation will tend to have a low beta A stock with a low standard deviation will tend to have a high beta

Answer 1

answer

A portfolio of 40 stocks has a total risk of 28%

A stock with high standard deviation will tend to have a low beta.