Q: Clearly explain why some risks are systematic and others non-systematic. How is it possible for an…
A: There are various types of risks that are faced by organizations in order to conduct its day to day…
Q: Several portfolio managers picked securities based on book-to-market ratio. None of them generated…
A: Book to market ratio tells us whether the stock is undervalued or overvalued. Efficient market is a…
Q: Give specific examples of systematic and unsystematic risk. How many different securities must be…
A: Systematic Risk is the risk that is inherent to the market. It is also known as market risks. This…
Q: Which statement about portfolio diversification is true? a. Proper diversification can eliminate…
A: Portfolio diversification refers to that investment strategy in which investments are made in…
Q: Which of the following statements is most correct? A. Combining positively correlated assets…
A: The combination of positively related and negative related assets has been seen provided in the…
Q: The benefits of portfolio diversification are highest when the individual securities within the…
A: Explanation: A diversified portfolio provides the highest benefits when the securities are largely…
Q: Which of the following statements related to risk is (are) true: (i) Beta measures risk that cannot…
A: Risk are of two types - systematic risk and unsystematic risk
Q: Which of the following statements is correct? (explain your answer) Shorter term securities have…
A: Reinvestment risk is risk of investment of coupon payment .
Q: What is the basic trade-off when departing from pure indexing in favor of an actively managed…
A: Introduction: Pure indexing is a method of passive management in which the portfolio managers…
Q: Portfolio diversification does not affect the variability of returns of an individual stock held in…
A: True. Portfolio diversification does not affect the variability of returns of an individual stock…
Q: Which are the most efficient combination of securities that provides investors with maximum…
A: The efficient frontier is a set of optimal portfolios that provide the greatest expected return for…
Q: When adding a randomly chosen new stock to an existing portfolio, the lesser (or more negative) the…
A: Answer: The given statement is True.
Q: What is the expected return on a portfolio? How can the expected return on a portfolio be…
A:
Q: Statement True False The unsystematic risk component of the total portfolio risk can be reduced by…
A: The unsystematic risk component of the total portfolio risk can be reduced by adding negatively…
Q: What does immunization using factor durations allow the bond portfolio manager to do that cannot be…
A: Bonds are called bond goods because they typically pay a set interest rate to the borrower (coupon).…
Q: The CAPM states that expected returns depend on an asset’s loading on market risk.
A: CAPM stands for capital asset pricing model. This model was developed by William. F. Sharpe. As per…
Q: An investor whose portfolio is well diversified is subject to: O A. systematic risk. B.…
A: The two broad categories of risk are systematic and non systematic risk.
Q: A stock's risk has a component called _____________________, which can be minimized as we add more…
A: Systematic risk is the risk that refers to entire market and it is not avoidable. this risk arises…
Q: whenever the returns from the individual securities are not perfectly possitively correlated, the…
A: Portfolio of securities allows the investor to diversify their risk so that the losses can be…
Q: Adding insurance-linked securities to a portfolio can increase an investor's return without…
A: Insurance linked securities are financial instruments whose value is primarily based on insurance…
Q: You can reduce un-systematic risk by adding more common stocks to your portfolio Yes No
A: Unsystematic risk is the risk of a specific company or industry.
Q: Which of the following statements is FALSE? O a. Because very little trading is required to maintain…
A: Portfolio management includes creating and overseeing a selection of diversified investments which…
Q: According to modern portfolio theory, the idea that investors with different indifference curves…
A: Option Explanation a. Separation Theorem is a theory that postulates that, given efficient capital…
Q: An investor must look not only at the over-all return of a portfolio but also the risk of that…
A: The risk-return trade-off argues that when risk grows, so does the possible reward. Individuals…
Q: A portfolio is efficient if no other asset or portfolios offer higher expected return with the same…
A: Solution: Efficient Portfolio is that portfolio out of the feasible portfolios, which has higher…
Q: The efficient market hypothesis assumed that market is perfect in which securities are typically in…
A: An efficient market hypothesis (EMH) used to the financial market used to have an efficient, which…
Q: It is said that the key factor that determines the risk of stocks in a large portfolio is not the…
A: portfolio consists of large numbers of securities in portfolio in portfolio return is not related or…
Q: All things equal, diversification is most effective when a. Securities returns are positively…
A: Diversification means using adding more than one security to the portfolio so that unsystematic risk…
Q: What is the difference between a diversifiable riskand a nondiversifiable risk? Should stock…
A: The diversifiable risk or unsystematic risk: It may be a kind of risk particular to a given economy,…
Q: broad terms, why are some risks diversifiable? Why are some risks non- diversifiable? Does it follow…
A: What is a diversifiable risk? Diversifiable risk(unsystematic risk) is a risk associated with a…
Q: ich of the following will not reduce risk in a portfolio? Select one: a. Selecting two…
A: Portfolio risk :- A portfolio is a combination of various assets that carries a risk that the value…
Q: According to modern portfolio theory, pair-wise covariance is more important to total portfolio risk…
A: According to modern portfolio theory, every investment's risk and return characteristics should not…
Q: Which of the following statements is correct? A delta-neutral portfolio is protected against…
A: Delta neutral portfolio is a portfolio that is balanced for positive and negative delta and the net…
Q: Explain, with the aid of an equation, the conditions under which variances of stock returns are…
A: As an investor, Construction of an optimal portfolio of investment is important. When constructing…
Q: State whether the following statement is True or False and explain why. “The return on a risk-free…
A: FALSE
Q: Diversifiable risk_ a. cannot be diversified away b. can be diversified away by holding multiple…
A: Introduction: Diversifiable risk is also referred to as unsystematic risk. Diversifiable risk is the…
Q: Which statement about portfolio diversification is correct?a. Proper diversification can reduce or…
A: Portfolio diversification is the process of risk management by investing in numerous securities to…
Q: Explain the following statement: “An asset held as part of a portfoliois generally less risky than…
A: An investment is refer as an asset purchased with intention to earn income at some time in future.…
Q: Portfolio return is a linear combination of individual securities whereas portfolio risk is…
A: Introduction: Risk can be characterised in terms of the uncertainty of future consequences resulting…
Q: Diversification occurs when stocks with low correlations of returns are placed together in a…
A: Correlation is a statistical measure of relationship or interdependency between two variables. The…
Combining securities that are perfectly positively correlated helps to reduce the risk of a portfolio
true
False
Step by step
Solved in 2 steps
- A portfolio is efficient if no other asset or portfolios offer higher expected return with the same (or lower) risk or lower risk with the same (or higher) expected return. Select one: True FalseAdding alternative investments to a traditional portfolio can increase expected returns and reduce systematic risk. Select one: True FalseDescribe why a fully diversified portfolio is said to have no unsystematic risk but has systematic risk? Then describe how the Arbritrage Pricing Theory (APT) has a cause and effect on the expected return of a security.
- Economy Probability Stock A Stock B Recession -30% -20% 10% 5% 40% 15% Average Boom What is the standard deviation of Stock A? 18.8% 24.9% 12.9% 0.25 0.50 0.25 20.0%Portfolio return is a linear combination of individual securities whereas portfolio risk is nonlinear?A well-diversified portfolio is most likely to have: Both systematic and unsystematic risk Only unsystematic risk Only systematic risk.
- Clearly explain why some risks are systematic and others non-systematic. How is it possible for an investor to control the level of non-systematic risk in a portfolio but not the level of systematic risk?According to modern portfolio theory, the idea that investors with different indifference curves will hold the same portfolio of risky securities is a result of O a. the separation theorem O b. covariance O c. the normal distribution assumption O d. diminishing marginal utility of incomeWhat is the expected return on a portfolio? How can the expected return on a portfolio be manipulated to minimize the risk on that portfolio?
- Markowitz theory indicates to create and construct a portfolio of assets to maximize returns within a given level of risk, or to devise one with a desired, specified and expected level of return with the least amount of risk. Under this broader concept, answer the followings: Justify, why an optimal portfolio should lie on security market line curveUnder Capital Market Theory, the relevant risk to consider with any security is: (a) Its correlation with other securities in the portfolio. (b) Its covariance with the market portfolio. (c) Its deviation from the portfolio required rate of return. (d) Its variance from the risk - free rate of return. (e) None of the aboveConsidering the attached set of securities and portfolio returns: Find the combination of the weights that minimizes CV of the portfolio. How does the CV of the optimal portfolio compare with the CVs of its constituents?