ZuoTi.Pro
Question

Which statements are TRUE regarding risk and return? Statement I: Diversification is the process of removing...

Which statements are TRUE regarding risk and return?

Statement I: Diversification is the process of removing systematic risk from a portfolio.

Statement II: In general, the greater the risk, the greater the return required by an investor.

Statement III: Investors should focus on real returns if they are concerned about the purchasing power of their wealth.

Options de la question 35 :

Statement I only

Statements I and II only

Cannot tell from the given information

Statements I and III only

Statements II and III only
business   finance   
0 0
Add a comment Improve this question Transcribed image text
Next > < Previous
Sort answers by oldest

Homework Answers

Answer #1

Diversification is the process of removing unsystematic risk from portfolio and first statement is FALSE.

The higher the risk, the higher the return, which is required by the investor and investor should be focusing on the real return, if they are concerned about purchasing power of their wealth, so both of the statements about risk and return along with the real rate of return along with the purchasing power are TRUE.

Correct answer will be option (D) II and III only.

0 0
Add a comment
Know the answer?
Add Answer to:
Which statements are TRUE regarding risk and return? Statement I: Diversification is the process of removing...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions

  • Which of the following statements is (are) TRUE? I) Risk-aversion investors accept investments that are fair...

    Which of the following statements is (are) TRUE? I) Risk-aversion investors accept investments that are fair games II) Risk-neutral investors judge investments only by expected returns – risk is not relevant III) Risk-averse and risk loving investors consider both an investment’s risk and return IV) Highly risk-averse investors would still allocate a small portion of their savings to stocks Choose from the options below: a) II only b) I only c) II,III and IV only d) I and II only...

  • Which of the following statements is/are INCORRECT? I. Beta measures a security's market risk, also known...

    Which of the following statements is/are INCORRECT? I. Beta measures a security's market risk, also known as systematic risk. II. SML is a graphical depiction of WACC model. III. If investors become more risk averse, the slope of SML will increase accordingly. IV. Other things being equal, a security's required rate of return doubles when its beta value doubles. V. Diversification will normally reduce the riskiness of a portfolio of securities. VI. Federal Reserve cuts an interest rate is considered...

  • 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...

  • Which of the following statements concerning risk are correct? I. Non diversifiable risk is measured by...

    Which of the following statements concerning risk are correct? I. Non diversifiable risk is measured by beta. II. The risk premium increases as diversifiable risk increases. III. Systematic risk is another name for non diversifiable risk. IV.Diversifiable risks are market risks you cannot avoid. O I and III only. O II and IV only. O land Il only. O III and IV only. O I, II, and III only.

  • 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...

  • Which stock exchange is a “virtual exchange”?       I. London stock exchange              II. New York Stock...

    Which stock exchange is a “virtual exchange”?       I. London stock exchange              II. New York Stock exchange III. Tokyo stock exchange             IV. Over-the-counter market I and II only III and IV only I only       IV only Kensington Company stock was selling at $132 a share when Charlotte sold 300 shares of the stock short. Today Charlotte bought 300 shares of the same stock at a price of $140 per share to cover her position. Ignoring trading costs, what...

  • A. Capital Allocation Lines The optimal CAL is found as the ray from the risk free...

    A. Capital Allocation Lines The optimal CAL is found as the ray from the risk free rate that is tangent to the _____________ and is called the ________________. efficient frontier; CML minimum variance portfolio; high range CAL indifference curve; SML lower half of the investment opportunity set; CAPM B. Capital Allocation Portfolio 1 has a standard deviation of 35% and a Sharpe ratio of 0.48. Portfolio 2 has a standard deviation of 29% and a Sharpe ratio of 0.44. Portfolio...

  • Need help with this question: Use the following three statements to answer this question: I. The...

    Need help with this question: Use the following three statements to answer this question: I. The CAPM points out that rational investors should be compensated for unique risk. II. The CAPM implies that non-systematic risk is the appropriate measure of risk to determine the risk premium required by investors for holding a risky security. III. The expected return from non-systematic risk is zero. a I, II and III are correct. b I and II are incorrect, III is correct. c...

  • Are the following statements true? Statement 1: In an efficient market, a professional portfolio manager cannot...

    Are the following statements true? Statement 1: In an efficient market, a professional portfolio manager cannot guarantee a superior risk-return trade-off. Statement 2: An investor who is confident of the efficient market hypothesis will more likely be an active investor than a passive investor. A. Yes. B. No. Both are not true. C. No. Only statement 1 is true. D. No. Only statement 2 is true.

  • Which of these statements apply MM Proposition II without taxes? I. The expected return on equity...

    Which of these statements apply MM Proposition II without taxes? I. The expected return on equity is positively related to leverage. II. The value of a firm cannot be changed by changing its capital structure. III. Risk to equity holders increases with leverage. IV. The expected return on equity is affected by the firm's debt-to-equity ratio. Multiple Choice II and IV only I, II, and III only I, III, and IV only I and III only I, II, III, and...

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT