In broad terms, why is some risk diversifiable? Why are some risks nondiversifiable? Does it follow that an investor can control the level of unsystematic risk in a portfolio, but not the level of systematic risk?
Diversifiable Risk :
Diversifiable risk is the possibility that there will be a change in the price of a security because of the specific characteristics of that security. Diversification of an investor's portfolio can be used to offset and therefore eliminate this type of risk. Diversified risk differs from the risk inherent in the marketplace as a whole.
Non Diversifiable Risk:
Risk which is common to a whole of assets and liabilities.
Being unavoidable and non compensating for exposure to such risks, non-diversifiable risk can be taken as the significant section of an asset's risk attributable to market factors affecting all firms. The Main reasons for this risk type include inflation,International incident etc.Moreover, it cannot be purged through diversification
Some risks are unique to that asset and can be eliminated by investing in different assets. some risks applies to all assets. Systematic risk can be controlled but by a costly effect on estimated returns.
Some of the risk in holding any asset is unique to the asset in question. By investing in a variety of assets, this unsystematic portion of the total risk can be eliminated at little cost. On the Other hand, there are systematic risks that effect all investments. This portion of the total risk of an asset cannot be costlessly eliminated.
In broad terms, why is some risk diversifiable? Why are some risks nondiversifiable? Does it follow...
Question 12 What does the beta measure? systematic risk diversifiable risk. company-specific risk. unsystematic risk.
18. Identify each of the following risks as either systematic risk or diversifiable risk: a. The risk that the CEO of your firm is killed in a plane accident b. The risk that the economy slows, decreasing demand for your firm's products c. The risk that your best employees will be hired away d. The risk that the new product you expect your R&D division to produce will not materialize
Total, nondiversifiable, and diversifiable risk David Talbot randomly selected securities from all those listed on the New York Stock Exchange for his portfolio. He began with a single security and added securities one by one until a total o 20 securities were held in the portfolio. After each security was added David calculated the portfolio standard deviation, ? The calculated values are shown in the following table: a. Plot the date from the table on a graph that has the...
Dropdown options: 1-risk/return 2-equal to/greater or less than 3-self contained/stand-alone 4-variance/standard deviation 5-variance/beta coefficient 6-diversifiable/non-diversiable 7-is/ is not 8-diversifiable/non-diversifiable 9-random/non random 10-decreasing/increasing 11-2000+/500 12-reduces/increases 13-systematic of market/unsystematic or company-specific 14-diversifiable/non diversifiable 1. Basic concepts - Risk and return Professor Isadore (Izzy) Invest-a-Lot retired two years ago from Exceptional College, a small liberal arts college in North Carolina after teaching corporate finance and investment theory for 35 years. Yesterday, Izzy appear on EC LIVE, a television show produced for the students,...
Explain why the risk premium of a stock does not depend on its diversifiable risk.
identify each of the following risks as most likely to be systematic risk or diversifiable risk:a. The risk that your main production plant is shut down due to a tornado. b. The risk that the economy slows, decreasing demand for your firm's products.c. The risk that your best employees will be hired away.d. The risk that the new product you expect your R&D division to produce will not materialize.
what is the correct option? Which of the following does NOT describe the risk that exists in a well- diversified portfolio? Non-diversifiable risk. Systematic risk. Market risk. Mitigating risk. Asset-specific risk.
The scroll down options are 1. systematic/unsystematic risk 2. systematic/unsystematic risk 3. standard deviation/risk aversion 4. correlation coefficient/diversification Risk is the potential for an investment to generate more than one return. A security that will produce only one known return is referred to as a risk- free asset, as there is no potential for deviation from the known expected outcome. Investments that have the chance of producing more than one possible outcome are called risky assets. Risk, or potential variability...
1) Explain liquidity risk, default risk, and taxability risk. How does each of these risks affect the yield of a bond? 2) Define what is meant by interest rate risk. Assume the manager of a $100 million portfolio of corporate bonds predicts interest rates will rise in the near future. What adjustments should be made to the portfolio assuming the market has not already adjusted for this prediction? 3) Normally, the Treasury yield curve is upward-sloping. Explain the conditions required...
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...