MODULE 3:
1. As we increase the number of stocks in a portfolio, the standard deviation of returns
of the portfolio? DECREASES
2. The market portfolio is the portfolio of all risky investments held IN PROPORTION TO
THEIR VALUE
3. As we add assets to a portfolio where the assets are held in equal weights, the benefit
of diversification is most dramatic AT THE OUTSET
4. A stock market comprises 4,900 shares of stock A and 1,900 shares of stock B.
Assume the share prices for stocks A and B are $21 and $37, respectively. If you
have $15,000 to invest and you want to hold the market portfolio, how much of your
money (in $) will you invest in Stock A? CHECK WORK
5. Bad managerial judgments or unforeseen negative events that happen to a firm are defined
as “company-specific” events, and their effects on investment risk can in theory be
diversified away. TRUE
6. Companies that sell household products and food have very little relation to the state
of the economy because such basic needs do not go away. These stocks tend to have
LOW betas.
7. The beta of the market portfolio is:1
8. Which of the following is NOT a systematic risk? THE RISK UR NEW PRODUCT WONT
RECEIVE REGULATORY APPROVAL
9. Which of the following statements is CORRECT? AN INVESTOR CAN ELIMATE
VIRTUALLY ALL DIVERSIFIABLE RISK IF SHE HOLDS A VERY LARGE, WELL
DIVERSIFIED PROFOLIO OF STOCKS
10. You expect General Motors (GM) to have a beta of 1.5 over the next year and the
beta of Exxon Mobil (XOM) to be 1.9 over the next year. Also, you expect the
