Which of the following statements is CORRECT?
If you formed a portfolio that consisted of all stocks with betas less than 1.0, which is about half of all stocks, the
portfolio would itself have a beta coefficient that is equal to the weighted average beta of the stocks in the
portfolio, and that portfolio would have less risk than a portfolio that consisted of all stocks in the market.
Market risk can be eliminated by forming a large portfolio, and if some Treasury bonds are held in the portfolio,
the portfolio can be made to be completely riskless.
A portfolio that consists of all stocks in the market would have a required return that is equal to the riskless rate.
If you add enough randomly selected stocks to a portfolio, you can completely eliminate all of the market risk
from the portfolio.
If you were restricted to investing in publicly traded common stocks, yet you wanted to minimize the riskiness of
your portfolio as measured by its beta, then according to the CAPM theory you should invest an equal amount of
money in each stock in the market. That is, if there were 10,000 traded stocks in the world, the least risky
possible portfolio would include some shares of each one.
