Answer whether each of the following statements is correct and explain your argument. (a) Well-diversified portfolios with a positive α are over-priced. (b) A well-diversified portfolio eliminates all risks

Answer whether each of the following statements is correct and explain your argument. (a) Well-diversified portfolios with a positive α are over-priced. (b) A well-diversified portfolio eliminates all risks

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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Question

Answer whether each of the following statements is correct and explain your argument.

(a) Well-diversified portfolios with a positive α are over-priced.

(b) A well-diversified portfolio eliminates all risks.

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Similar questions

The CAPM implies that heterogeneous agents hold the same risky portfolio a) even if they differ in their risk aversion b) even if they face constraints on leveraging. Explain whether it is TRUE, FALSE or UNCERTAIN.
When using the binomial model, you can't make decisions about investment using only the risk-neutral measure because O all investments have the same expected rate of return in the risk-neutral measure. all investors are risk-neutral in the risk-neutral measure. all information about risk was removed from the model by switching from physical to risk-neutral measure. there are undue assumptions made in the construction of the risk-neutral measure. None of the other responses.
ich of the following will not reduce risk in a portfolio? Select one: a. Selecting two securities that are perfectly positively correlated. b. Selecting two securities that are positively correlated. c. Selecting two securities that are perfectly negatively correlated. d. Selecting two securities that are negatively correlated.
You would like to invest in a portfolio to the right of the optimal risky portfolio, on the capital allocation line. What do you need to do to achieve this? Select one: O a. It is not possible to invest to the right of the optimal risky portfolio O b. Borrow and invest in the optimal risky portfolio O c. Lend money at the risk-free rate of return O d. Short sell the optimal risky portfolio
The risk-adjusted discount rate reduces investment. True or false?
A Listen An example of the no-arbitrage principle holding would be when all risk-free investments offer investors: A) the same return B) negative returns C) positive returns D) zero return
Which of the following is TRUE? High-risk investments always have high returns If you invest in a risky investment, you are guaranteed to have a high return. On average, an investor will earn high returns on a low-risk investment On average across investments and over time, riskier investments have higher returns. A high-risk investment will never have a total loss.
Which one of the following is a property of a pure arbitrage portfolio? a)Zero return.b)Zero investment.c)Zero price for the assets in the portfolio d)None of the above is correct.
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.

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