Give typing answer with explanation and conclusion Which of the following statements is CORRECT? a. An investor can eliminate virtually all market risk if he or she holds a very large and well diversified portfolio of stocks. b. The higher the correlation between the stocks in a portfolio, the lower the risk inherent in the portfolio. c. It is impossible to have a situation where the market risk of a single stock is less than that of a portfolio that includes the stock. d. Once a portfolio has about 40 stocks, adding additional stocks will not reduce its risk by even a small amount. e. An investor can eliminate virtually all diversifiable risk if he or she holds a very large, well-diversified portfolio of stocks.

Give typing answer with explanation and conclusion Which of the following statements is CORRECT? a. An investor can eliminate virtually all market risk if he or she holds a very large and well diversified portfolio of stocks. b. The higher the correlation between the stocks in a portfolio, the lower the risk inherent in the portfolio. c. It is impossible to have a situation where the market risk of a single stock is less than that of a portfolio that includes the stock. d. Once a portfolio has about 40 stocks, adding additional stocks will not reduce its risk by even a small amount. e. An investor can eliminate virtually all diversifiable risk if he or she holds a very large, well-diversified portfolio of stocks.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 13QTD

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Which of the following statements is CORRECT? a. The higher the correlation between the stocks in a portfolio, the lower the risk inherent in the portfolio. b. An investor can eliminate almost all risk if he or she holds a very large and well diversified portfolio of stocks. c. Once a portfolio has about 40 stocks, adding additional stocks will not reduce its risk by even a small amount. d. An investor can eliminate almost all diversifiable risk if he or she holds a very large, well-diversified portfolio of stocks. e. An investor can eliminate almost all market risk if he or she holds a very large and well diversified portfolio of stocks.
An investor must look not only at the over-all return of a portfolio but also the risk of that portfolio to see if the investments return compensates for the risk it takes a. it depends b. maybe c. true d.false
an investment market, understanding the concept of undervalued and overvalued stocks is very important. Hence, a prudent investor must have good knowledge about Beta, Market Rate of Return and Risk Free Rate of Return. Required: a) Being an investor, critically analyse the conditions of undervalued and overvalued stocks
Suppose that stocks are exposed to systematic risks only so that stock i has the following return structure: Ri,t = mį + Si,t where mi is the average return, and si,t is the systematic risk. When we construct a portfolio including more and more stocks, which of the following would happen? The portfolio volatility gradually decreases and eventually converges to a certain positive value. ● The portfolio volatility gradually decreases and eventually converges to zero. The portfolio volatility stays unchanged.
Which of the following statements is most correct? A. If you add enough randomly selected stocks to a portfolio, you can completely eliminate all the market risk from the portfolio. B. If you form a large portfolio of stocks each with a beta greater than 1.0, this portfolio will have more market risk exposure than a single stock with a beta of 0.8. C. Company-specific (or unsystematic) risk can be reduced by forming a large portfolio, but normally even highly diversified portfolios are subject to market (or systematic) risk. D. Statements B and C are correct. E. All of the above statements are correct.
Diversification works because: Select one: a. Portfolios have higher returns than individual assets. O b. Firm-specific risk can be never be reduced. O c. Stocks earn higher returns than bonds. O d. Unsystematic risk exists. O e. Forming stocks into portfolios reduces the standard deviation of returns for each stock.
When seeking to diversify and eliminate unsystematic risk in your portfolio, do you want stocks whose movements have high correlation (i.e. move together) or low correlation (i.e. don't move togeter). a) High correlation b) Low correlation
Which of the following statements related to risk is (are) true: (i) Beta measures risk that cannot be diversified. (ii) As more shares are included in a portfolio the total risk of that portfolio goes down. (iii) Investors are normally risk averse and, therefore, they demand a risk premium.
Which of the following statements is FALSE? A. When we combine many stocks in a large portfolio, the firm-specific risks for each stock will average out and be diversified. B. The volatility in a large portfolio will decline as the size of the portfolio increases until only the systematic risk remains. OC. The risk premium of a security is determined by its systematic risk and does not depend on its diversifiable risk. OD. Fluctuations of a stock's returns that are due to firm-specific news are common risks.
Identify the FALSE statement a. Where two securities are perfectly positively correlated, there is no reduction in unsystematic risk through diversification. b. Portfolio theory, as initially developed by Markowitz (1952), assumes that the returns from investments are normally distributed. c. Beta is calculated by finding the covariance between the return on the asset and the return on the market and dividing it by the variance of the return on the market. d. A well-diversified portfolio should have a beta significantly less than one.
Q1 .In an investment market , understanding the concept of undervalued and overvalued stock is very important . hence , a prudent investor must have good knowledge about beta, market rate of return and risk free rate of return a) Being an investor , critically analyse the conditions of undervalud and overvalued stock b) Give a graphical example to present the positioning of - systematic risk - risk free rate of return - mareket rate of return - risk premium
1. The diversifiable risk of a portfolio: a. Is correlated with systematic risk. b. Can be made sufficiently small. c. Is zero in the real world. d. Is the risk that investors lose because of transaction costs. Which one of the following conditions determines the investor’s overall optimal portfolio? a. The marginal ratio of substitution of the investor’s utility function must be equal to the Sharpe ratio of the optimal risky portfolio. b. The standard-deviation of the overall portfolio in minimised. c. The expected return of the overall portfolio is maximised. d. The slope of the Sharpe-ratio is equal to zero. 4. Markets can never be strong-form efficient because: a. There are too many traders in them. b. Investors are rational. c. Information is costly to acquire. d. All information is public. 5. Which one of the following is not a property of a pure arbitrage portfolio? a. Zero investment. b. Zero systematic risk. c. Positive net return. d. All of the above.