Question

Which of the following are definitely true regarding portfolio theory based on risk and return? a....

Which of the following are definitely true regarding portfolio theory based on risk and return?

a. If an investor has a well-diversified portfolio, the portfolio would have a β of 0
d. If an investor has a well-diversified portfolio, the portfolio would have a β of 1
c. If Stock A has a higher expected return than Stock B, a rational investor would choose to invest in Stock A
d. A well-diversified portfolio’s level of risk cannot be further reduced down

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Answer #1

The above answers aren't true

expanation

A) If an investor has a well-diversified portfolio, the portfolio would have a β of 0

B) If an investor has a well-diversified portfolio, the portfolio would have a β of 1

A well diversified porfolio will not have beta = 0 or 1

C) If Stock A has a higher expected return than Stock B, a rational investor would choose to invest in Stock A

A rational investor would still look into risks of A and B before investing

D) A well-diversified portfolio’s level of risk cannot be further reduced down

The risk cant be reduced in any portfolio.

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