Jane Holds a Large Diversified Portfolio of 100 Randomly Selected

Multiple Choice

Jane holds a large diversified portfolio of 100 randomly selected stocks and the portfolio's beta = 1.2. Each of the individual stocks in her portfolio has a standard deviation of 20 percent. Jack has the same amount of money invested in a single stock with a beta equal to 1.6 and a standard deviation of 20 percent. Which of the following statements is most correct?

A) Jane's portfolio has a larger amount of company-specific risk since she is holding more stocks in her portfolio.
B) Jane has a higher required rate of return, since she is more diversified.
C) Jane's portfolio has less market risk since it has a lower beta.
D) Statements b and c are correct.
E) None of the statements above is correct.