True or False: Portfolio diversification reduces the variability of the returns on an individual stock.
Diversification helps to reduce risk of overall portfolio not individual stocks.
Answer: FALSE.
True or False: Portfolio diversification reduces the variability of the returns on an individual stock.
Portfolio diversification. a) Reduces the effect of high returns of high-earnings stocks. b) Reduces the effect of low returns on low-earnings stocks. c) Reduces systematic risk. d) None of the above. e) a. and b.
If securities returns are uncorrelated, diversification will not reduce risk. true or false, explain
3. Portfolio risk and diversification Aa Aa E 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? O O O A portfolio containing only Chevron stock A portfolio consisting of about 30 energy stocks A portfolio consisting of about 30 randomly selected stocks Portfolio managers pick stocks for their clients' portfolios based on the investment objective of the portfolio and several other factors....
3. Portfolio risk and diversification Aa Aa 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 with 10 randomly selected international stocks A portfolio with 10 randomly selected U.S. stocks A portfolio with 10 randomly selected stocks from U.S. and international markets Portfolio managers pick stocks for their clients' portfolios based on the investment objective of the portfolio and several...
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...
How is the standard deviation of returns for individual common stocks or for a stock portfolio calculated?
Diversification occurs when stocks with low correlations of returns are placed together in a portfolio. Identify at least one type of firm that might exhibit low correlations of returns with the overall stock market? Explain why the correlations of these firms are expected to be low.
2. Answer the following questions: a. Calculate the variability (standard deviation) of the stock returns of California REIT and Brown Group during the past 2 years. How variable are they compared with Vanguard Index 500 Trust? Which stock appears to be riskless? b. Suppose Beta's position had been 99% of equity funds invested in the index fund and 1% in the individual stock. Calculate the variability of this portfolio using each stock. How does each stock affect the variability of...
Which of the following statements is CORRECT? a. A stock with a beta of -1.0 has no risk if it is in a 1-stock portfolio. b. By definition, all stocks in the market have the same level of market risk. c. Portfolio diversification reduces the variability of returns on an individual stock. d. If you diversify completely and hold all the stocks in the market, your portfolio will have a standard deviation equal to zero. e. The SML relates a...
4. A 5% stock dividend reduces a firm's total equity. a. True b. False 5. A cash dividend reduces the firm's assets. a. True b. False 7. Once a firm has earnings, management has essentially two choices: distribute or retain them. a. True b. False 8. Federal income taxes favor the retention of earnings over the distribution of earnings. a. True b. False 9. A stock dividend has no impact on a firm's liabilities or the price of its stock....