QUESTION 5 By efficiently diversifying, an investor can: Eliminate risk Eliminat

Question

QUESTION 5

By efficiently diversifying, an investor can:

Eliminate risk

Eliminate systematic risk

Eliminate unsystematic risk

Can't really have much affect on risk due to market forces

QUESTION 6

Comptron currently trades for a price based upon its last dividend paid of $4, its beta of 1.1 and expected growth of 2%. The risk free and risk premium are 2.5% and 6%, respectively. The new CEO wants to launch new initiatives for growth. In discussing the plans with the CFO, the new initiatives boil down to an increased growth rate to 5%, but at the cost of increasing beta to 1.4 Should the initiatives be undertaken?

Yes--new stock price should move to $67.49, an increase over its current price.

Yes--new stock price should move to $71.19, an increase over its current price of $58.29.

No--new stock price should move to $67.49, a decrease from its current price.

No--new stock price should move to $71.19, a decrease from its current price.

QUESTION 7

An investor has put money in four stocks in the dollar amounts indicated and with betas specified. What is the portfolio beta? Stock A $3,456 with a beta of 1.27; stock B $7,148 with a beta of 1.13; stock C $4,151 with a beta of 0.93; and stock D $7,704 with a beta of 1.31. Show your answer rounded to two decimal points.

Step by step inputs please!

Eliminate risk

Eliminate systematic risk

Eliminate unsystematic risk

Can't really have much affect on risk due to market forces

Explanation / Answer

Question 5:

By efficiently diversifying, an investor can:

Eliminate unsystematic risk.

Unsystematic Risk is specific to particular company or an industry Unsystematic risk is that portion of total risk that arise due to the factors which effects the internal working of the firm. Factors like, management capability, consumer preferences, labour strikes and stages in product life cycle can affect the firm

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