Question

- 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 containing all stocks whereas the beta coefficient is a metric that shows the extent to which a given stock’s return moves up and down with the stock market (TRUE/FALSE)?

Answer 1

Answer(1): True

Correlation takes place when two variables/securities move together in the same direction.

Answer(2): True

Diversifiable risk is related to company/security, that can be reduced by proper diversification. Market risk cannot be reduced by diversification, it can only be reduced by asset allocation.

Answer(3): False

Floating rates pay variable rates, their rate of return keep fluctuating while fixed rate bonds pay a fixed rate of interest.

Answer(4): True

Market portfolio contains many stocks of different companies. Beta is a measure of systematic risk that tells how much a stock moves with respect to stock market.