Added to a portfolio comprised of three stocks

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Reference no: EM131878490

1. If a large number of diverse securities are added to a portfolio comprised of three stocks, then the:

weighted average of the APT factor betas goes to zero.

weighted average expected return goes to zero.

return on the portfolio will equal the risk-free rate.

weighted average of the unsystematic risk goes to zero.

return of the portfolio goes to zero.

2. When selecting a benchmark, it is important to match the security or portfolio that will be evaluated to securities:

with the same PE ratios.

that closely mimic the overall market.

that have an opposing style.

of similar style that are available for purchase.

identical factor betas for all factors in the pricing model being utilized.

Reference no: EM131878490

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