QUESTION 5 Systematic risk is: a risk that affects a large number of assets. the

ID: 2634824 • Letter: Q

Question

QUESTION 5

Systematic risk is:

a risk that affects a large number of assets.

the total risk inherent in an individual security.

also called diversifiable risk.

also called asset-specific risk.

unique to an individual firm.

5 points

QUESTION 6

Diversifying a portfolio across various sectors and industries will tend to:

increase the required risk premium.

reduce the beta of the portfolio to zero.

increase the security's risk premium.

eliminate the market risk.

reduce the firm-specific risk.

5 points

QUESTION 7

The stock of Uptown Men's Wear is expected to produce the following returns given the various states of the economy. What is the expected return on this stock?

Probabilities: Recession:0.4 Normal:0.4 Boom:0.2

Returns: Recession:-11% Normal:12% Boom:23%

6.75%

11.2%

3.85%

14%

5 points

QUESTION 8

11.12%

10.24%

12.94%

13.07%

5 points

QUESTION 9

The goal of diversification is to eliminate:

all investment risk.

the market risk premium.

systematic risk.

unsystematic risk.

the effects of beta.

5 points

QUESTION 10

21.44%

29.38%

16.00%

14.05%

5 points

QUESTION 11

Which one of the following portfolios has the least amount of systematic risk?

a portfolio that duplicates the overall market

a portfolio comprised of 50 percent cash and 50 percent large-company stocks

a portfolio consisting of various U.S. Treasury bills

a stock portfolio with a portfolio beta of 1.8

a diversified portfolio with a portfolio beta of 0.7

5 points

QUESTION 12

The difference between beta and standard deviation is best described as:

Beta measures the risk of the market as a whole, while standard deviation measures the risk of individual stocks.

Beta measures total volatility, while standard deviation measures total risk.

Beta measures the market risk premium, while standard deviation measures risk.

Beta measures the risk investors are compensated for, while standard deviation measures both systematic and unsystematic risk.

5 points

QUESTION 13

Which one of the following best exemplifies unsystematic risk?

an unexpected economic boom

an unexpected decrease in interest rates

an unexpected increase in the sales of a firm

a sudden increase in the inflation rate

an expected increase in tax rates

5 points

QUESTION 14

Given the following information, what is the standard deviation for this stock? (Hint: you'll need to find the expected return first)

Probabilities:
Recession: 0.3
Normal: 0.55
Boom: 0.15

Returns:
Recession: -11%
Normal: 9%
Boom: 13%

11.19%

10.47%

12.05%

9.66%

8.39%

10 points

QUESTION 15

Sibling Incorporated has a beta of 1. If the expected return on the market is 13%, what is the expected return on Sibling Incorporated's stock?

6.5%

cannot be determined without the risk free rate

13%

5 points

QUESTION 16

The concept of investing in a variety of diverse assets to reduce risk is referred to as:

beta measuring.

split investing.

the principle of diversification.

the principle of elimination.

the systematic risk principle.

5 points

QUESTION 17

The amount of systematic risk present in a particular risky asset relative to that in an average risky asset (or the market in general) is called the:

risk premium.

beta coefficient.

standard deviation.

mean.

variance.

5 points

QUESTION 18

Which one of the following is the best example of systematic risk?

inflation exceeding market expectations

a fire destroying an industrial plant

a firm's CEO suddenly resigning

growth in the plastics industry slowing

individuals spending less on footwear

5 points

QUESTION 19

A typical measure for the risk-free rate of return is the:

U.S. Treasury Bill rate.

prime lending rate.

money market rate.

short-term AAA-rated bond rate.

a risk that affects a large number of assets.

the total risk inherent in an individual security.

also called diversifiable risk.

also called asset-specific risk.

unique to an individual firm.

Explanation / Answer

Answer 5 - a risk that affects a large number of assets

Reason - systematic risk refers to the risk which is an investor is taking by default by investing in market which offers a return higher than the risk free rate of return. So this risk affects a large number of assets.

Answer 6 - reduce the firm-specific risk

Reason - unsystematic risk is the risk existing in a particular security in which an investor is investing. So instead of investing all money in a single asset an investor should invest in diversified securities so that the firm-specific risk can be reduced.

Answer 7 - 5%

Reason : -11(0.4) + 12(0.4) + 23(0.2) = 5%

Answer 8: 11.12%

Reason : 0.2(0.1455) + 0.5(0.1266) + 0.3(0.0627) = 11.12%

As per chegg guidelines, first 4 questions have been answered and explained, please provide other question (MCQ) in bunch of 4 questions to get answers of all of them.

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QUESTION 5 Systematic risk is: a risk that affects a large number of assets. the

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