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s Unsystematic risk: A can be effectively eliminated through portfolio diversifi

ID: 2783871 • Letter: S

Question

s Unsystematic risk: A can be effectively eliminated through portfolio diversification. ii. is compensated for by the risk premium. C. is measured by beta. D. cannot be avoided if you wish to participate in the financial markets. E. is related to the overall economy. 16. Which one of the following would indicate a portfolio is being effectively diversified? A. an increase in the portfolio beta B. a decrease in the portfolio beta C. an increase in the portfolio rate of return D. an increase in the portfolio standard deviation E. a decrease in the portfolio standard deviation 17. A. B. C. D. E. A stock with an actual return that lies above the security market line has: more systematic risk than the overall market. more risk than warranted based on the realized rate of return. yielded a higher return than expected for the level of risk assumed. less systematic risk than the overall market. yielded a return equivalent to the level of risk assumed. 18. According to the capital asset pricing model, the expected return on a security is: A. negatively and non-linearly related to the security's beta. B. negatively and linearly related to the security's beta. C. positively and linearly related to the security's variance. D. positively and non-linearly related to the security's beta. E. positively and linearly related to the security's beta. 19. As we add more diverse securities to a portfolio, the_risk of the portfolio w decrease while the risk will not. A. total; unsystematic B. systematic; unsystematic C. total; systematic D. systematic; total E. unsystematic, total

Explanation / Answer

15 A
Unsytematic risk is for an individual asset and can be removed by diversification

16 E Decrease in portfolio standard deviation will result in diversification


17 C this means that the stock has given greater return per unit of risk assumed


18 E is the correct option

19 C is the most apt option