### Portfolio Management and Risk#### Eliminating Unsystematic Risk**64) Tom "Tom Terrific" Seaver is looking to eliminate unsystematic risk in his portfolio which comprises 2 million shares of Tesla. What is the best way he can go about doing that?**a) Buy more of the same security b) Diversify with shares of other automobile companies c) Diversify with shares in multiple industries d) Buy puts on the shares of Tesla e) Call his professor *Correct Answer:* **c) Diversify with shares in multiple industries**Unsystematic risk, also known as specific or diversifiable risk, can be reduced or eliminated by diversifying a portfolio. By holding a variety of investments across different industries, the impact of the performance of one company or sector on the overall portfolio is minimized.#### Capital Asset Pricing Model (CAPM)**65) Mike Piazza is asking you to tell him about the Capital Asset Pricing Model (CAPM). What will you tell him?**a) CAPM shows the expected return for a particular asset b) CAPM incorporates the pure time value of money c) CAPM explains the reward for bearing systematic risk d) CAPM alerts you to the amount of systematic risk of a particular security e) All of the above*Correct Answer:* **e) All of the above**The Capital Asset Pricing Model (CAPM) is a foundational theory in finance that describes the relationship between the expected return of an asset and its risk relative to the overall market. It takes into account:- **Expected Return**: CAPM provides a formula to calculate the expected return on an investment based on its risk compared to the market.- **Time Value of Money**: It incorporates the concept that money available now is worth more than the same amount in the future due to its potential earning capacity.- **Systematic Risk**: CAPM distinguishes between systematic risk (market risk) and unsystematic risk (specific risk), explaining the reward for taking on systematic risk.- **Risk Assessment**: It helps investors understand the systematic risk associated with a particular security through the beta coefficient.By applying CAPM, investors can make informed decisions about which securities to include in their portfolios to maximize expected returns for a given level of risk.

Unsystematic Risk- It is the risk which is associated to perticular company and Industry. In simple…

64) Tom "Tom Terrific" Seaver is looking to eliminate unsystematic risk in his portfolio which comprises 2 mm shares of Tesla. What is the best way he can go about doing that? a) Buy more of the same security b) Diversify with shares of other automobile companies c) Diversify with shares in multiple industries d) Buy puts on the shares of Tesla e) Call his professor

64) Tom "Tom Terrific" Seaver is looking to eliminate unsystematic risk in his portfolio which comprises 2 mm shares of Tesla. What is the best way he can go about doing that? a) Buy more of the same security b) Diversify with shares of other automobile companies c) Diversify with shares in multiple industries d) Buy puts on the shares of Tesla e) Call his professor

Fundamentals of Financial Management (MindTap Course List)

14th Edition

ISBN:9781285867977

Author:Eugene F. Brigham, Joel F. Houston

Publisher:Eugene F. Brigham, Joel F. Houston

Chapter8: Risk And Rates Of Return

Section: Chapter Questions

Problem 8TCL

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Hello i just saw the company policy, this question is the second time i am asking but i would like to get help with question 6
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