Systematic risk is the amount of risk associated with entire market and these are undiversified risk. Only non systematic risk can be eliminated by proper diversification. Total risk can be measured by standard deviation of portfolio return.
Question 4 1 pts Which of the following statement is correct about systematic risk and non-systematic...
1. Which of the following statement is correct about systematic risk and non-systematic risk? A. Systematic risk can be eliminated by proper diversification. B. Fluctuation in oil price is a non-systematic risk. C. Financial markets reward you for bearing systematic risk. D. A stock’s systematic risk is measured by the standard deviation of its return. 2. As discussed in class, based on the CAPM, an electric utility will have the greater cost of equity capital than an airline company. True...
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...
Which of the following statements about risk measures is correct? a. Beta is a measure of systematic risk, whereas standard deviation is the measure of total risk. b. Beta is a measure of total risk, whereas standard deviation is the measure of unsystematic risk. c. Beta is a measure of total risk, whereas standard deviation is the measure of systematic risk. d. Beta is a measure of total risk, whereas Standard deviation is the measure of systematic risk. e. Beta...
S13-26 Systematic versus Unsystematic Risk (LO3] Consider the following information about Stocks I and II: Rate of Return If State Occurs Probability of State of Economy .15 Stock Stock 11 --23 State of Economy Recession Normal Irrational exuberance .03 .20 .70 .09 .15 .08 .43 The market risk premium is 7 percent, and the risk-free rate is 3.5 percent. (Round your answers to 2 decimal places, e.g., 32.16.) The standard deviation on Stock I's return is deviation on Stock Il's...
Problem 13-26 Systematic versus Unsystematic Risk [LO3] Consider the following information about Stocks I and I Rate of Return If State Occurs State of Probability of State of Stock II Economy Stock I Economy 28 Recession 05 -20 Normal 53 17 07 Irrational 19 06 40 exuberance The market risk premium is 8 percent, and the risk-free rate is 2 percent. (Do not round intermediate calculations. Round your answers to 2 decimal places, e.g., 32.16. Enter your return answers as...
Problem 13-26 Systematic versus Unsystematic Risk [LO3] Consider the following information about StocksI and II: Rate of Return If State Occurs State of Economy Stock II Probability of State of Economy .25 .45 .30 Stock .06 21 - 29 Recession Normal Irrational exuberance .09 .15 49 The market risk premium is 8 percent, and the risk-free rate is 4 percent. (Do not round intermediate calculations. Round your answers to 2 decimal places, e.g., 32.16. Enter your return answers as a...
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...
Checl 9 Problem 13-26 Systematic versus Unsystematic Risk (LO3) 10 points Consider the following information about Stocks I and II: Rate of Return If State Occurs References State of Economy Recession Normal Irrational exuberance Probability of State of Economy 0.15 0.70 0.15 Stock I 0.02 0.21 0.06 Stock II -0.25 0.09 0.44 The market risk premium is 7%, and the risk-free rate is 4%. (Do not round intermediate calculations. Round the final answers to 2 decimal places.) The standard deviation...
Question 13 (0.2 points) Which one of the following is the computation of the risk premium for an individual security? E(R) is the expected return on the security, Rfis the risk-free rate, B is the security's beta, and E(RM) is the expected rate of return on the market. O 1) E(RM) - RF O2) B[E(RM) - RA O 3) E(R) - E(RM) 04) E(R) - [E(RM) + RA View hint for Question 13 Question 14 (0.2 points) Which one of...
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...