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 following statement is false?Group of answer choicesA risk premium can be measured as the difference between a security's return and the Treasury bill return.Diversification reduces the risk of a portfolio because the prices of different securities do not move exactly together.The beta of a well-diversified portfolio is equal to the value weighted average beta of the securities included in the portfolio.The portfolio risk that cannot be eliminated by diversification is called unique risk.

Which of the following statements is incorrect?Group of answer choicesIf two assets with return correlation coefficients less than one make up a portfolio, then the portfolio takes advantage of diversification benefits.If you were to completely diversify your portfolio by purchasing a portion of every asset in the investment universe, then the expected return of your portfolio is equal to the risk-free rate.Diversification cannot be a hedging tool for systematic risk.If you are trying to determine whether to purchase Security A or Security B as the only holding in your portfolio, then you can consider the coefficient of variation in order to understand the risk-return relationship of the individual securities.If the price of an asset has increased since the original purchase of the asset, then the total return of the asset (if no dividends were paid during the period) is equal to the capital appreciation component return.

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 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 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.