Which of the following statements is most correct?
A) If you add enough randomly selected shares to a portfolio, you can completely eliminate all the market risk from the portfolio
B) If you formed a portfolio which included a large number of low beta shares (shares with betas less than 1.0 but greater than -1.0) , the portfolio would itself have a beta coefficient that is equal to the weighted average beta of the shares in the portfolio, so the portfolio would have a relatively low degree of risk.
C) If you were restricted to investing in publicly traded ordinary shares, yet you wanted to minimise the riskiness of your portfolio as measure by its beta, then, according to the CAPM theory, you should invest some of your money in each share in the market, i.e., if there were 10,000 traded shares in the world, the least risky portfolio would include some shares in each of them.
D) Company specific (or unsystematic) risk can be eliminated by forming a large portfolio, but normally even highly diversified portfolios are subject to market (or systematic) risk.
E) Statements b and d are both correct.
Correct Answer:
Verified
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