18 - Which statement about portfolio diversification is correct? a) None of the statements are correct. b) Because diversification reduces a portfolio's total risk, it necessarily reduces the portfolio's expected return. c) The risk-reducing benefits of diversification do not occur meaningfully until at least 50-60 individual securities have been purchased. d) O Typically, as more securities are added to a portfolio, total risk would be expected to increase at a decreasing rate. Proper diversification can eliminate unsystematic risk.

18 - Which statement about portfolio diversification is correct? a) None of the statements are correct. b) Because diversification reduces a portfolio's total risk, it necessarily reduces the portfolio's expected return. c) The risk-reducing benefits of diversification do not occur meaningfully until at least 50-60 individual securities have been purchased. d) O Typically, as more securities are added to a portfolio, total risk would be expected to increase at a decreasing rate. Proper diversification can eliminate unsystematic 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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Exposure to systematic or market risk can be reduced by? A. adding low or negative beta stocks to the portfolio. B. investing in a variety of economic sectors. C. cannot be reduced or avoided. D. diversifying internationally.
20. A portfolio of assets has lower risk than holding one asset, but the same expected return and higher transaction costs. Which of the following statements is most correct? A. The portfolio is attractive to people who are risk-averse and risk-neutral, but not to risk seekers B. The portfolio is attractive to investors who are risk-neutral C. The portfolio is not attractive to investors who are risk-neutral D. The portfolio is attractive to investors who are risk seekers
5
Question 5 a) “If markets are semistrong-form efficient, investors would only adopt passive investment strategies and buy into an index fund, rather than active strategies where they would have a portfolio manager select the components of their portfolios and seek for mispriced equities.” Explain if you agree with this statement, in no more than 150 words.
Questionn 1- Select the incorrect statement about the optimal portfolio weights in the SIM from the following: a. When short sales are not allowed, the investor will hold more assets in her portfolio than when short sales are allowed. b. When the single index is tradeable, securities with negative will be shorted. c. When the single index is tradeable, securities with higher (given everything else constant) are more desirable. d. The investor's portfolio with no short sales is less desirable than the portfolio with short sales.
The so-called ``flight to quality'', which happens during a financial crisis, causes the risk premium between risky and risk-free securities to be Question 6 options: eliminated. reduced. unchanged (there is no effect). increased.
Question Five: Which of the following is not an assumption that underpins the capital asset pricing model (CAPM)? Investors behave in accordance with Markowitz mean-variance portfolio theory. Investors are rational and risk averse. Investors all invest for the same period of time. Investors have heterogeneous expectations about expected returns and return variances for all assets. There is a risk free rate at which all investors can borrow or lend any amount. Capital markets are perfectly competitive, frictionless and efficient. Question Six: Which of the following expressions best describes the slope of the security market line? The slope of the security market line is equal to the Sharpe ratio. The slope of the security market line is equal to the Treynor ratio. The slope of the security market line is equal to alpha. The slope of the security market line is equal to the market risk premium. The slope of the security market line is equal to the standard deviation of the risky…
Which one of the following expressions about risk and returns is wrong? A. In general, one reason why a stock is riskier than a bond is that because cash flows from a bond are known and promised, whereas cash flows from a stock are neither known nor promised. B. According to CAPM model, a well-diversified portfolio will have a beta which equals to 0. C. Risk premium is the extra return provided on risky assets to compensate for risk. The difference between risky return and the risk-free return. D. Unexpected return happened because new information came to light which caused our expectations about prices and returns to change.
1.3 Problem 1: Answer with a clear true/false, and provide a detailed explanation to substantiate your answer: As more and more assets are added to a portfolio, its total risk would typically fall at a decreasing rate.

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