True or False: Any investor (or firm) must be concerned solely with nondiversiflable risk because it...
True or False: Any investor (or firm) must be concerned solely
with nondiversiflable risk because it can create a portfolio of
assets that will eliminate all, or virtually all diversifiable
risk.
Homework Answers
TRUE
Using diversification, diversifiable risk which affects a particular stock can be diversified away. Non diversifiable risk such as change in interest rates, inflation etc cannot be diversified. Therefore, any investor (or firm) must be concerned solely with nondiversiflable risk
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True or False: Any investor (or firm) must be concerned solely
with nondiversiflable risk because it...
PLEASE EXPLAIN WHY ANSWER IS TRUE OR FALSE: "Risk aversion" implies that investors require higher expected...
PLEASE EXPLAIN WHY ANSWER IS TRUE OR FALSE: "Risk aversion" implies that investors require higher expected returns on riskier than on less risky securities. a. True b. False When adding a randomly chosen new stock to an existing portfolio, the higher (or more positive) the degree of correlation between the new stock and stocks already in the portfolio, the less the additional stock will reduce the portfolio's risk. a. True b. False An individual stock's diversifiable risk, which is measured...
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...
QUESTION 18 Which of the following statements is CORRECT? 1. An investor can eliminate virtually all...
QUESTION 18
Which of the following statements is CORRECT?
1.
An investor can eliminate virtually all diversifiable risk if
he or she holds a very large, well-diversified portfolio of
stocks.
2.
Once a portfolio has about 40 stocks, adding additional stocks
will not reduce its risk by even a small amount.
3.
It is impossible to have a situation where the market risk of
a single stock is less than that of a portfolio that includes the
stock.
4.
An...
Which statement is TRUE? a) All of these statements are false b) The measure of risk...
Which statement is TRUE? a) All of these statements are false b) The measure of risk for a security held in a diversified portfolio is standard deviation c) As more stocks are added to a portfolio, total risk is expected to fall but at an increasing rate. So if one were to invest in enough stocks, total risk could be eliminated. d) Diversification reduces the portfolio’s expected return because it reduces the portfolio’s total risk e) Proper diversification can reduce...
Diversification can eliminate: a. all risk in a portfolio. b. risk only if the investor is...
Diversification can eliminate: a. all risk in a portfolio. b. risk only if the investor is risk averse. c. the systematic risk in a portfolio. d. the idiosyncratic risk in a portfolio.
True or false and why? 5. If all investors in the market become less risk-averse, the...
True or false and why? 5. If all investors in the market become less risk-averse, the slope of the Security Market alone (SML) will decrease. 6. If an investor purchase a enough stocks (say, S&P500 index), the investor can eliminate all of the market risk embedded in those stocks.
17. Buying stock on margin lowers the overall risk for the investor. A) True B) False...
17. Buying stock on margin lowers the overall risk for the investor. A) True B) False 18. The P/E ratio presents the relationship between a firm's profits divided by their earnings per share. A) True B) False 19. Accountants truly represent the financial managers of a business. A) True B) False 20. A budget's primary purpose is to provide managers with a financial summary of the past operations of a firm. A) True B) False 21. As a financíal manager...
QUESTION 16 If an investor buys at least 50 stocks from different industries, he or she...
QUESTION 16 If an investor buys at least 50 stocks from different industries, he or she can, through diversification, eliminate all of the company-specific risk inherent in owning stocks, but as a general rule it will not be possible to eliminate all market (systematic) risk. True False 3.5 points QUESTION 17 Stock A's beta is 0.5 and Stock B's beta is 1.5. Which of the following statements must be true about these securities? (Assume market equilibrium.) When held in...
- The tendency for tow variables to move together refers to their correlation (TRUE/FALSE)? - Diversifiable...
- The tendency for tow variables to move together refers to their correlation (TRUE/FALSE)? - Diversifiable risk is the part of a security’s risk that can be eliminated by proper diversification while market risk remains after no company specific risk has been diversified (TRUE/FALSE)? - Floating-rate bonds are bonds that pay a fixed interest over their lifetime whereas fixed-rate bonds pay variable interest rates, which reflect the general level of interest rates (TRUE/FALSE)? - A market portfolio is a portfolio...
A mean-variance investor is constructing an optimal portfolio. The stock of Thunder Electric has an expected...
A mean-variance investor is constructing an optimal portfolio. The stock of Thunder Electric has an expected return of 3% and zero correlation with all other available risky assets. The risk-free rate is 3%. A rational mean variance investor should hold some non-zero position in the stock because it diversifies the portfolio. True/False/Uncertain
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...
QUESTION 18
Which of the following statements is CORRECT?
1.
An investor can eliminate virtually all diversifiable risk if
he or she holds a very large, well-diversified portfolio of
stocks.
2.
Once a portfolio has about 40 stocks, adding additional stocks
will not reduce its risk by even a small amount.
3.
It is impossible to have a situation where the market risk of
a single stock is less than that of a portfolio that includes the
stock.
4.
An...
17. Buying stock on margin lowers the overall risk for the investor. A) True B) False 18. The P/E ratio presents the relationship between a firm's profits divided by their earnings per share. A) True B) False 19. Accountants truly represent the financial managers of a business. A) True B) False 20. A budget's primary purpose is to provide managers with a financial summary of the past operations of a firm. A) True B) False 21. As a financíal manager...
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