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5. Portfolio risk and diversification A financial planner is examining the portfolios held by several of her clients. Which of the following portfolios is likely to have the smallest standard deviation? A portfolio containing only Microsoft stock. A portfolio containing Microsoft, Apple, and Google stock, A portfon consisting of about three randomly selected stocks from different sectors. Portfolio managers pick stocks for their clients' portfolios based on the investment objective of the portfolio and several other factors. One key consideration is each stock's contribution to portfolio risk and its statistical relationship with the portfolio's other stocks, Based on your understanding of portfolio risk, identify whether each statement is true or false. True False Statement A portfolio's risk is not equal to the weighted average of the individual stocko standard deviations. The market risk component of the total portfolio risk can be reduced by randomly adding stocks to the portfolio When returns on Stock A increase, returns on Stock B also increase. In general, this would mean that Stocks A and are positively correlated. The risk in a portfolio will increase it more stocks that are negatively correlated with other stocks are added to the portfolio Grade It Now Save & Continue Continue without saving 6. The beta coefficient A stock's contribution to the market risk of a well-diversified portfolio is called risk. It can be measured by a metric called the beta coefficient, which calculates the degree to which a stock moves with the mover Orket. unsystematic Based on your understanding of the beta coefficient, indicate whether each sta relevant llowing table is true or false True False Statement Stock A's beta is 1.0; this means that the stock moves in the same direction and magnitude as the market. A stock that is more volatile than the market will have a beta of more than 1.0. Higher-beta stocks are expected to have lower required returns. Grade it Now Save & Continue Continue without having

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