Explain why the risk premium of a stock does not depend on its diversifiable risk.
Answer: Investors can remove diversifiable risk from their portfolio by diversifying. They therefore do not demand a risk premium for it
Explain why the risk premium of a stock does not depend on its diversifiable risk.
2. Why does the required return on a stock only depend on its amount of systematic risk but not on its idiosyncratic risk?
true or false: according to the CPM, the risk for a security with high diversifiable risk and high systematic risk is grater than the risk premium for a security with low diversifiable risk and high systematic risk.
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?
1. Explain why investors require higher risk premium for a stock with higher systematic risk.
What is the stock's beta? Why does the stock pay a lower risk premium than the market? A stock costs $30. It rises to $40 with probability 0.62 and falls to $20 with probability 0.38. The risk free interest rate is 2%. The market risk premium is 8%.
Question 12 What does the beta measure? systematic risk diversifiable risk. company-specific risk. unsystematic risk.
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.
Which of the following risks of a stock are likely to be firm-specific, diversifiable risks, and which are likely to be systematic risks? Which risks will affect the risk premium that investors will demand? A. The risk that the founder and CEO retires B. The risk that oil prices rise, increasing production costs C. The risk that a product design is faulty and the product must be recalled D. The risk that the economy slows, reducing demand for the firm's...
The non-diversifiable risk of the stock market is measured by: a beta of 1.0. a beta of 0.0. a standard deviation of 1.0. a standard deviation of 0.0.
Given the following information for the stock of Foster Company, calculate the risk premium on its common stock. Current price per share of common stock $39.45 Expected dividend per share next year $3.59 Constant annual dividend growth rate 9.2% Risk-free rate of return 4.9% the risk premium on Foster stock is ___% round to two decimal places