As diversification increases, the total variance of a portfolio approaches
(n-1) * n |
infinity |
0 |
1 |
Non-diversifiable risk |
As diversification increases, the total variance of a portfolio approaches (n-1) * n infinity 0 1...
________is essentially eliminated by diversification, so a relatively large portfolio has almost no ___________. a.Unsystematic risk / Diversifiable risk b.Variance / variance c.Systematic risk / Diversifiable risk d.Systematic risk / Market risk
PORTFOLIO RISK 0 15 150 30 45 60 75 90 105 120 135 NUMBER OF STOCK IN THE PORTFOLIO Based on the data presented in the previous graph, which of the following statements are true? Check all that apply. The risk of a portfolio consisting of large-company stocks approaches a limit of 10%. All stocks are equally risky, and adding them to a portfolio will increase the portfolio's risk. Diversifiable risk lies below o = 10%. As the portfolio size...
6. Explain to me the benefits of diversification using the model of the variance of portfolio returns that we explained in class.
Does random diversification increase or decrease the variance of a portfolio? What role do events play in the actual return of a portfolio? Is this statement true – “if the event is expected, it is already reflected in the stock price”? Explain. What risk can be diversified away? Beta measures what form of risk? If you have a three stock portfolio and all three stock have betas of 2.0 or more what is the beta of the portfolio? Less than...
The principle of diversification tells us that Select one: a. the riskiness of a portfolio will decrease exponentially if we add to the portfolio assets with low standard deviations. b. total risk of a portfolio will be reduced by lowering its unsystematic risk. c. total risk of a portfolio can be eliminated by including as many stocks with different levels of systematic risk as possible. d. the addition of more stocks from different industries will always reduce the risk in...
6. Portfolio risk and diversification 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 consisting of about 30 randomly selected stocks A portfolio containing only Chevron stock A portfolio consisting of about 30 energy stocks Portfolio managers pick stocks for their clients' portfolios based on the investment objective of the portfolio and several other factors. One key consideration is each stock's...
1. Diversification cannot reduce the portfolio risk if you invest different stocks in the same industry. Why? Explain. Diversification reduces the portfolio risk if you invest different stocks in the different industries. Why? Explain. 2. If you would like to form your stock investment portfolio, (1) how many stocks would you include in the portfolio, and (2) what are these stocks (companies) in the portfolio. Explain why you choose these companies.
Question 1 1 pts Select the statement below that is correct: After a portfolio has about 20 stocks, adding additional stocks will not reduce its risk at all. The higher the correlation between the stocks in a portfolio, the lower risk inherent in the portfolio. An investor can eliminate almost all diversifiable risk if they hold a large well-diversified portfolio of stocks. An investor can eliminate almost all non-diversifiable risk if they hold a large well-diversified portfolio of stocks. An...
The risk reduction through diversification in a portfolio of two stocks: A. (Both statements are correct.) B. (Not enough information.) C. increases as the correlation between the stocks declines. D. decreases as the correlation between the stocks rises.
Prove that the following sequences diverge to infinity or
negative infinity
(c) { - e^n }
(a) 120-1)) 3 n2 Hint : Provide an M - N proof that an approaches infinity
(a) 120-1)) 3 n2 Hint : Provide an M - N proof that an approaches infinity