15 15 30 6 0 75 0 106 120 136 150 NUMBER OF STOCK IN THE PORTFOLIO Based on the data presented in the previous graph, which of the following statements are true? Check all that apply. All stocks are equally risky, and adding them to a portfolio will increase the portfolio's risk. The risk of a portfolio consisting of large-company stocks approaches a limit of 10%. Diversifiable risk lies below o = 10%. As the portfolio size increases, its market risk remains constant. D A portfolio of 60 stocks has a total risk of 14%. The benchmark for a well-diversified stock portfolio is the market portfolio, which is a portfolio containing all stocks. The relevant risk of an individual stock is measured by its beta coefficient, which is defined under the Capital Asset Pricing Model (CAPM) as the amount of risk that the stock contributes to the well-diversified portfolio. Based on your understanding of the CAPM and beta, answer the following question: Which of the following statements about beta is true? A stock with a high standard deviation will tend to have a high beta. A stock with a high standard deviation will tend to have a low beta. A stock with a low standard deviation will tend to have a high beta. PORTFOLIO RISK
15 15 30 6 0 75 0 106 120 136 150 NUMBER OF STOCK IN THE PORTFOLIO Based on the data presented in the previous graph, which of the following statements are true? Check all that apply. All stocks are equally risky, and adding them to a portfolio will increase the portfolio's risk. The risk of a portfolio consisting of large-company stocks approaches a limit of 10%. Diversifiable risk lies below o = 10%. As the portfolio size increases, its market risk remains constant. D A portfolio of 60 stocks has a total risk of 14%. The benchmark for a well-diversified stock portfolio is the market portfolio, which is a portfolio containing all stocks. The relevant risk of an individual stock is measured by its beta coefficient, which is defined under the Capital Asset Pricing Model (CAPM) as the amount of risk that the stock contributes to the well-diversified portfolio. Based on your understanding of the CAPM and beta, answer the following question: Which of the following statements about beta is true? A stock with a high standard deviation will tend to have a high beta. A stock with a high standard deviation will tend to have a low beta. A stock with a low standard deviation will tend to have a high beta. PORTFOLIO RISK
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Risk and return
Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.
Capital Asset Pricing Model
Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.
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Transcribed Image Text:15
15 30 6 0 75 0 106 120 136
150
NUMBER OF STOCK IN THE PORTFOLIO
Based on the data presented in the previous graph, which of the following statements are true? Check all that apply.
All stocks are equally risky, and adding them to a portfolio will increase the portfolio's risk.
The risk of a portfolio consisting of large-company stocks approaches a limit of 10%.
Diversifiable risk lies below o = 10%.
As the portfolio size increases, its market risk remains constant.
D A portfolio of 60 stocks has a total risk of 14%.
The benchmark for a well-diversified stock portfolio is the market portfolio, which is a portfolio containing all stocks. The relevant
risk of an individual stock is measured by its beta coefficient, which is defined under the Capital Asset Pricing Model (CAPM) as the
amount of risk that the stock contributes to the well-diversified portfolio. Based on your understanding of the CAPM and beta, answer
the following question:
Which of the following statements about beta is true?
A stock with a high standard deviation will tend to have a high beta.
A stock with a high standard deviation will tend to have a low beta.
A stock with a low standard deviation will tend to have a high beta.
PORTFOLIO RISK
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