TIME ALLOTED 6MINUTES Student D risk?of the S A Only wealthy investors can diver
ID: 2791030 • Letter: T
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TIME ALLOTED 6MINUTES Student D risk?of the S A Only wealthy investors can diversify their portolios because B. Risk-averse investors often choose their portfolios becaus the companies came from the same industry C. Risk-averse investors often select portfolios that include only companies from of returns is less than if althe the same industry group because the familiarity reduces the risk D. Proper diversification generally results in the elimination of risk A1 B) 2 C)O D)-1 you will be left with 2. The beta of the market portfolio is 3. If you build a large enough portfolio, you can diversify away all risk B) risk, but A) undiversifiable, diversifiable )diversifiable, unsystematic D) unsystematic, systematic 4. The systematic risk (beta) of a portfolio is by holding more stocks, even if they each had the same systematic risk. A) increased B) unchanged C) decreased D) turned to 5. Inflation, recession, and high interest rates are economic events that are characterized as A) Company-specific risk that can be diversified away C) D) Systematic risk that can be diversified away. Diversifiable risk. 6. Stocks have both diversifiable risk and undiversifiable risk, but only diversifiable risk is rewarded with higher expected returns. A) True B) False 7. If you build a large enough portfolio, you can diversífy away all the risks of a portfolio. A) True B) False 8. Accounting profits is the most relevant variable the financial manager uses to measure returns. A) True B) FalseExplanation / Answer
Answer 1) b) Risk Averse investors often choose companies from different industries for their portfolios because the correlation of returns is less than if all the companies came from the same industry.
Explanation:- Investing in different industries that are negatively correlated decreases variation in the overall portfolio.
Answer 2) a) The beta for the market portfolio is 1.0
Explanation= In theory,Stocks may have positive or negative betas, but most stocks have positive betas ,meaning most stocks move procyclical.
Stocks with betas greater that 1.0 are more responsive than average to market fluctuations and therefore are riskier than average. Stocks with betas less than 1.0 are less risky than the average stock.
Because greater risk is generally linked to higher returns,the higher stock s beta ,the greater its expected return.
Answer 3) d)unsystematic ,systematic
Answer 4)b) unchanged
Answer 5)b) among the factors that are resposible for market risk.
Answer 6) b) False
That is not a question. It is a statement, and it is false. It should be changed to say: Stocks have both diversifiable risk and undiversifiable risk, but only UNdiversifiable risk is rewarded with higher expected returns.
Answer 7) b) False
if you build a large enough portfolio, you can diversify away all unsystematic risk but you will be left with systematic risk.
Answer 8) False
The most common measure of performance for managers responsible for investment centers is return on investment (ROI).
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