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Suppose the market consists only of Merck (MRK)and Boeing (BA).Merck stock is trading for $36.70 per share with 2.11 billion shares outstanding while Boeing has 697.5 million shares outstanding and a market capitalization of $38.223 billion.Assume that you hold the market portfolio.
-Which of the following statements is FALSE?
A)The market portfolio contains more of the smallest stocks and less of the larger stocks.
B)For the market portfolio,the investment in each security is proportional to its market capitalization.
C)Because the market portfolio is defined as the total supply of securities,the proportions should correspond exactly to the proportion of the total market that each security represents.
D)Market capitalization is the total market value of the outstanding shares of a firm.

Question

Quizplus · Accepted Answer

The statement "The market portfolio contains more of the smallest stocks and less of the larger stocks" is false. The market portfolio contains a proportionate amount of each stock based on its market capitalization, so larger stocks like Boeing would have a greater weighting in the portfolio. B, C, and D are all true statements.

Use the Following Information to Answer the Question(s)below