The benefit of diversification is: Select one: A. made possible because the returns from risky assets...
The benefit of diversification is: Select one:
A. made possible because the returns from risky assets move perfectly in synch
B. the increase in standard deviation that occurs when we combine more than one risky assets in a portfolio
C. is significant when we add 10 to 25 assets to a portfolio but diminishes as we add more risky assets
D. all of the above are correct
Homework Answers
C. is significant when we add 10 to 25 assets to a portfolio but diminishes as we add more risky assets
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The benefit of diversification is: Select one:
A. made possible because the returns from risky assets...
If there is no diversification benefit derived from combining two risky stocks into one portfolio, then the O A. return...
If there is no diversification benefit derived from combining two risky stocks into one portfolio, then the O A. returns on the two stocks must move perfectly in sync with one another. O B. returns on the two stocks must move perfectly opposite of one another. OC. stocks must have a zero correlation. O D. portfolio is equally weighted between the two stocks. O E. two stocks are completely unrelated to one another.
If there is no diversification benefit derived...
In a portfolio that contains two assets it is possible that there is no benefit to...
In a portfolio that contains two assets it is possible that there is no benefit to diversification from moving from a single asset to two assets. Why can this happen?Select one: a. It happens if returns on the assets in the portfolio are perfectly positively correlated. b. It happens if each of the assets is a common share. c. It happens if returns on one asset are negatively correlated with returns on the other asset. d. The statement is incorrect...
The principle of diversification tells us that Select one: a. the riskiness of a portfolio will...
The principle of diversification tells us that Select one: a. the riskiness of a portfolio will decrease exponentially if we add to the portfolio assets with low standard deviations. b. total risk of a portfolio will be reduced by lowering its unsystematic risk. c. total risk of a portfolio can be eliminated by including as many stocks with different levels of systematic risk as possible. d. the addition of more stocks from different industries will always reduce the risk in...
od The capital asset pricing model (CAPM) explains how risk should be considered when stocks and...
od The capital asset pricing model (CAPM) explains how risk should be considered when stocks and other assets are held -Select- The CAPM states that any stock's required rate of return is -Select the risk-free rate of return plus a risk premium that reflects only the risk remaining -Select- diversification. Most individuals hold stocks in portfolios. The risk of a stock held in a portfolio is typically -Select the stock's risk when it is held alone. Therefore, the risk and...
2. 3: Risk and Rates of Return: Risk in Portfolio Context Risk and Rates of Return:...
2. 3: Risk and Rates of Return: Risk in Portfolio Context Risk
and Rates of Return: Risk in Portfolio Context The capital asset
pricing model (CAPM) explains how risk should be considered when
stocks and other assets are held . The CAPM states that any stock's
required rate of return is the risk-free rate of return plus a risk
premium that reflects only the risk remaining diversification. Most
individuals hold stocks in portfolios. The risk of a stock held in...
Statement True False Because of the effects of diversification, the portfolio's risk is likely to be...
Statement True False Because of the effects of diversification, the portfolio's risk is likely to be more than the average of all stocks' standard deviations. The unsystematic risk com ponent of the total portfolio risk can be reduced by adding negatively correlated stocks to the portfolio. A portfolio's risk is likely to be smaller than the everage of all stocks' standard deviations, because diversification lowers the portfolio's risk. Portfolio risk will increase if more stocks that are negatively correlated with...
Jeanne Lewis is attempting to evaluate two possible portfolios consisting of the same five assets but...
Jeanne Lewis is attempting to evaluate two possible portfolios consisting of the same five assets but held in different proportions. She is particularly interested in using beta to compare the risk of the portfolios and, in this regard, has gathered the following data: a. Calculate the betas for portfolios A and B. b. Compare the risk of each portfolio to the market as well as to each other. Which portfolio is more risky? (Round to three decimal places.) a. The...
3 Question 3 In a market are listed two risky assets whose returns are described by the following parameters...
3 Question 3 In a market are listed two risky assets whose returns are described by the following parameters HA=0.01. MB = 0.07, 01 = 0.2 and op = 0.12. The correlation among the securities is constant and equal to p=0.1. 1. Derive the equation for the frontier 2. Derive the minimum variance portfolio and the equation for the efficient frontier 3. Let's add a risk free asset among the possible investments with return r = 0.03 and derive the...
Correlation, risk, and return Matt Peters wishes to evaluate the risk and return behaviors associated with...
Correlation, risk, and return Matt Peters wishes to evaluate the risk and return behaviors associated with various combinations of assets V and W under three assumed degrees of correlation: perfectly positive, uncorrelated, and perfectly negative. The expected return and risk values calculated for each of the assets are shown in the following table, B a. If the returns of assets V and W are perfectly positively correlated correlation coefficient = +1), describe the range of (1) expected return and (2)...
Queation 20 Markad out of 1.00 Consider a portiolo made up of two risky assets and...
Queation 20 Markad out of 1.00 Consider a portiolo made up of two risky assets and a risk-free asset You nest 30% inasset A with a beia of 125and 40% in asset B with a beta of 1.05. What is the beta of the portfolio? Select one b. 1.20 C. 1.03 d.1.12 .0.80 o 21 Your portolio conists of two stocks You have $2500 in stock A and 57500 in stock B. The retums for stock A have a standar...
If there is no diversification benefit derived from combining two risky stocks into one portfolio, then the O A. returns on the two stocks must move perfectly in sync with one another. O B. returns on the two stocks must move perfectly opposite of one another. OC. stocks must have a zero correlation. O D. portfolio is equally weighted between the two stocks. O E. two stocks are completely unrelated to one another.
If there is no diversification benefit derived...
od The capital asset pricing model (CAPM) explains how risk should be considered when stocks and other assets are held -Select- The CAPM states that any stock's required rate of return is -Select the risk-free rate of return plus a risk premium that reflects only the risk remaining -Select- diversification. Most individuals hold stocks in portfolios. The risk of a stock held in a portfolio is typically -Select the stock's risk when it is held alone. Therefore, the risk and...
2. 3: Risk and Rates of Return: Risk in Portfolio Context Risk
and Rates of Return: Risk in Portfolio Context The capital asset
pricing model (CAPM) explains how risk should be considered when
stocks and other assets are held . The CAPM states that any stock's
required rate of return is the risk-free rate of return plus a risk
premium that reflects only the risk remaining diversification. Most
individuals hold stocks in portfolios. The risk of a stock held in...
Statement True False Because of the effects of diversification, the portfolio's risk is likely to be more than the average of all stocks' standard deviations. The unsystematic risk com ponent of the total portfolio risk can be reduced by adding negatively correlated stocks to the portfolio. A portfolio's risk is likely to be smaller than the everage of all stocks' standard deviations, because diversification lowers the portfolio's risk. Portfolio risk will increase if more stocks that are negatively correlated with...
Jeanne Lewis is attempting to evaluate two possible portfolios consisting of the same five assets but held in different proportions. She is particularly interested in using beta to compare the risk of the portfolios and, in this regard, has gathered the following data: a. Calculate the betas for portfolios A and B. b. Compare the risk of each portfolio to the market as well as to each other. Which portfolio is more risky? (Round to three decimal places.) a. The...
3 Question 3 In a market are listed two risky assets whose returns are described by the following parameters HA=0.01. MB = 0.07, 01 = 0.2 and op = 0.12. The correlation among the securities is constant and equal to p=0.1. 1. Derive the equation for the frontier 2. Derive the minimum variance portfolio and the equation for the efficient frontier 3. Let's add a risk free asset among the possible investments with return r = 0.03 and derive the...
Correlation, risk, and return Matt Peters wishes to evaluate the risk and return behaviors associated with various combinations of assets V and W under three assumed degrees of correlation: perfectly positive, uncorrelated, and perfectly negative. The expected return and risk values calculated for each of the assets are shown in the following table, B a. If the returns of assets V and W are perfectly positively correlated correlation coefficient = +1), describe the range of (1) expected return and (2)...
Queation 20 Markad out of 1.00 Consider a portiolo made up of two risky assets and a risk-free asset You nest 30% inasset A with a beia of 125and 40% in asset B with a beta of 1.05. What is the beta of the portfolio? Select one b. 1.20 C. 1.03 d.1.12 .0.80 o 21 Your portolio conists of two stocks You have $2500 in stock A and 57500 in stock B. The retums for stock A have a standar...
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