Which of the following statements about the ‘Portfolio Theory’ section of the lecture material are TRUE:The standard deviation of a portfolio of shares in two different companies will always be less than the weighted average of the standard deviations of the individual shares.A share portfolio that follows a diversified market index is expected to offer a reasonably efficient trade-off between expected return and risk.Question 8AnswerNeither of the statements are true (both are false)Only statement 1 is trueOnly statement 2 is trueBoth statements are true (neither are false)

Which of the following statement is false?Group of answer choicesThe risk of a well-diversified portfolio depends on the market risk of the securities included in the portfolio.The variability of a well-diversified portfolio mostly reflects the contributions to risk from the standard deviations of the stocks within that portfolio.If returns on two stocks tended to move in opposite directions, then the covariances and correlations on the two stocks would be negative.Diversification can reduce portfolio risk even in the case when correlations across stock returns equal zero.

Which of the statement is WRONG?A.The market portfolio contains all shares of all stocks and securities in the market.B.There is no clear relationship between the volatility and return of individual stocks.C.Diversification eliminates both idiosyncratic risk and systematic risk.D.The total risk of a security contains risk which is not rewarded.

Which statement is correct regarding the following information? - Shares in company A have an expected return of 8%, standard deviation of 15%  and beta coefficient of 1.3- Shares in company B have an expected return of 12%, standard deviation of 25% and beta coefficient of -0.75.Group of answer choicesIn a single asset portfolio, security A would be riskier because its coefficient of variation is higher than security B.In a single asset portfolio, security B would be riskier because its coefficient of variation is higher than security ASecurity A is less risky if held in a diversified portfolio because of its positive correlation with market portfolioSecurity B is riskier if held in a diversified portfolio because of its beta coefficient of –0.75None of the options is correct.

. Referring to the same information as in question 4:Which of the following statements is not true?The total risk of the stock is reflected in its standard deviationThe systematic or non-diversifiable risk is reflected in betaThe market risk premium is 8%The firm’s risk premium is 12%The market has a beta of 1.5

Which of the following statements is true?Group of answer choicesA stock having a covariance with the market that is higher than the variance of the market will always have a beta above 1.0.Stocks with high standard deviations will necessarily also have high betas.The standard deviation of a two-stock portfolio generally equals the value-weighted average of the standard deviations of the two stocks.A portfolio with a beta of one offers an expected return equal to the market risk premium.