Homework Answers
The Correct Answer is Securities returns are uncorrelated.
Correlation refers to the strength of linear relationship between two variables.
Whenever we invest in two or more assets in a portfolio the risk gets reduced. The extent of risk reduction depends upon correlation. Lower the correlation the greater is the risk reduction or benefit of diversification.
Hence securities that are uncorrelated will provide greater benefit of diversification in the form of risk reduction.
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Question 9 Other things equal, diversification is most effective when Securities' returns are positively correlated. Securities'...
Diversification is most effective when security returns are _________. A. negatively correlated B. uncorrelated C. positively...
Diversification is most effective when security returns are _________. A. negatively correlated B. uncorrelated C. positively correlated D. high Please explain why
3. (2 points) Diversification is most effective when security returns are_ a high b. negatively correlated...
3. (2 points) Diversification is most effective when security returns are_ a high b. negatively correlated positively correlated d uncorrelated Asset Pricing (18 points) 4. (3 points) Suppose the CAPM holds and you have the following information on different assets Asset Systematie Risk Firm-specific Risk A 0.12 0.11 0.11 0.10 0.14 0.17 Which one of the following is true? a. Asset A has the largest beta b. Asset B has the largest beta
QUESTION 14 The bervefits of portfolio diversification are highest when the individual securities win the path...
QUESTION 14 The bervefits of portfolio diversification are highest when the individual securities win the path vary directly with the rest of the portfolio vary proportionally with the rest of the portello. are largely uncorrelated with the rest of the portfolio are perfectly correlated with the marketportoio. QUESTIONS
Other things equal, when adding new securities to a portfolio, the lower (less positive) the correlation...
Other things equal, when adding new securities to a portfolio, the lower (less positive) the correlation between the new securities and those already in the portfolio, the less the additional portfolio diversification. True False Question 7 (4 points) Consider the following portfolio: Stock Investment Expected Return А $400000 16% B $200000 12% C $800000 18% $300000 16% The expected rate of return for the portfolio is: Your Answer:
Question 4 How can you reduce risk through diversification? by combining investments whose returns do not...
Question 4 How can you reduce risk through diversification? by combining investments whose returns do not move together and thus are not perfectly positively correlated by combining investments whose returns move together and thus are perfectly positively correlated by investing all the money in a single asset whose returns are abnormally high None of the above
pehormance within of an index of share returns for a particular country or industry sector a...
pehormance within of an index of share returns for a particular country or industry sector a corporation rather than purchased. 9. Commercial paper is a short-term security issued by A. the Federal Reserve Bank D. the New York Stock Exchange 10. Theindex represents the performance of the Canadian stock market. A. DAX 11. Shelf registration A. is a way of placing issues in the primary market. B. allows firms to register securities for sale over a two-year period. C. increases...
Question 27 (Mandatory) (1 point) When the correlation coefficient between the returns of two securities is...
Question 27 (Mandatory) (1 point) When the correlation coefficient between the returns of two securities is zero, an investor can still receive benefits from diversifying from combining both securities and the standard deviation of a portfolio consisting of both securities would lower than the weighted sum of the individual securities' standard deviations. True False Question 28 (Mandatory) (1 point) While the individual investor always chooses his/her 'normal' position along the CAL in accordance with his/her level of risk aversion, the...
3. Portfolio risk and diversification Aa Aa A financial planner is examining the portfolios held by...
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...
QUESTION 25 You invest the same dollar amount in 5 different securities. All else equal diversification produces th...
QUESTION 25 You invest the same dollar amount in 5 different securities. All else equal diversification produces the greatest benefits of the correlation coefficients for the returns of the 5 securities are close to 1. True False
3. Portfolio risk and diversification Aa Aa E A financial planner is examining the portfolios held...
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. (2 points) Diversification is most effective when security returns are_ a high b. negatively correlated positively correlated d uncorrelated Asset Pricing (18 points) 4. (3 points) Suppose the CAPM holds and you have the following information on different assets Asset Systematie Risk Firm-specific Risk A 0.12 0.11 0.11 0.10 0.14 0.17 Which one of the following is true? a. Asset A has the largest beta b. Asset B has the largest beta
QUESTION 14 The bervefits of portfolio diversification are highest when the individual securities win the path vary directly with the rest of the portfolio vary proportionally with the rest of the portello. are largely uncorrelated with the rest of the portfolio are perfectly correlated with the marketportoio. QUESTIONS
Other things equal, when adding new securities to a portfolio, the lower (less positive) the correlation between the new securities and those already in the portfolio, the less the additional portfolio diversification. True False Question 7 (4 points) Consider the following portfolio: Stock Investment Expected Return А $400000 16% B $200000 12% C $800000 18% $300000 16% The expected rate of return for the portfolio is: Your Answer:
Question 4 How can you reduce risk through diversification? by combining investments whose returns do not move together and thus are not perfectly positively correlated by combining investments whose returns move together and thus are perfectly positively correlated by investing all the money in a single asset whose returns are abnormally high None of the above
pehormance within of an index of share returns for a particular country or industry sector a corporation rather than purchased. 9. Commercial paper is a short-term security issued by A. the Federal Reserve Bank D. the New York Stock Exchange 10. Theindex represents the performance of the Canadian stock market. A. DAX 11. Shelf registration A. is a way of placing issues in the primary market. B. allows firms to register securities for sale over a two-year period. C. increases...
Question 27 (Mandatory) (1 point) When the correlation coefficient between the returns of two securities is zero, an investor can still receive benefits from diversifying from combining both securities and the standard deviation of a portfolio consisting of both securities would lower than the weighted sum of the individual securities' standard deviations. True False Question 28 (Mandatory) (1 point) While the individual investor always chooses his/her 'normal' position along the CAL in accordance with his/her level of risk aversion, the...
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...
QUESTION 25 You invest the same dollar amount in 5 different securities. All else equal diversification produces the greatest benefits of the correlation coefficients for the returns of the 5 securities are close to 1. True False
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....
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