As one adds more assets to aportfolio in order to achievediversification, what will happen tothe portfolio's risk?OA. The risk will decline asdiversifiable risk is reduced to zero,after which non-diversifiable risk willremain and the riskiness of theportfolio will stabilize.B. It will decline until eventuallyall risk is eliminated.C. It will increase, as the additionof riskier and riskier assets will causeoverall portfolio risk to rise.O D. It will remain the samethroughout the process, as overallportfolio risk is relatively stable.

Diversification is a process in which investors add more assets which are not well correlated to…

As one adds more assets to a portfolio in order to achieve diversification, the portfolio's risk? O A. The risk will decline as diversifiable risk is reduced to zero, after which non-diversifiable risk will remain and the riskiness of the portfolio will stabilize. what will happen to OB. It will decline until eventually all risk is eliminated. OC. It will increase, as the addition of riskier and riskier assets will cause overall portfolio risk to rise. D. It will remain the same throughout the process, as overall portfolio risk is relatively stable.

As one adds more assets to a portfolio in order to achieve diversification, the portfolio's risk? O A. The risk will decline as diversifiable risk is reduced to zero, after which non-diversifiable risk will remain and the riskiness of the portfolio will stabilize. what will happen to OB. It will decline until eventually all risk is eliminated. OC. It will increase, as the addition of riskier and riskier assets will cause overall portfolio risk to rise. D. It will remain the same throughout the process, as overall portfolio risk is relatively stable.

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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Explain the unique risk and the market risk. What risk can be reduced when you diversify your portfolio by investing across many different assets?
I need the answer as soon as possible
Over time, a portfolio manager’s cumulated trade implementation shortfall will equal: a. Cumulated direct transaction costs and liquidity costs b. Cumulated market price variations associated with the time delays between investment decisions and trade executions c. Cumulated management costs (salaries, overheads, etc.) d. (a) + (b) e. (a) + (b) + (c)
I 1. If news comes to the market that suggested that the world stock prices will encounter less variability (variance) for the coming years than in the past, what would this mean for an owner of a portfolio which is mostly composed of call and put options? A. This is great news less variability is less risk, which will help portfolio return B. It is unclear if this news will be beneficial or harmful to the portfolio C. This will have no effect on the portfolio as it is immunized from volatility. D. This will be bad news for the portfolio as it has many options within it and option values are higher when volatility is higher. The answer is D, as options increase in value with greater volatility and with less volatility the portfolio will surely be worthless money. O This is great news less variability is less risk, which will help portfolio return O It is unclear if this news will be beneficial or harmful to the portfolio This will have no effect on the portfolio as it is immunized from…
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.
Question 05 Portfolio diversification help reduce the risk. Do you agree with the statement. Explain your stand with examples.
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…
F1
Select all that are true with respect to systematic and unsystematic risk. Group of answer choices Systematic risk is unimportant when estimating expected returns Unystematic risk is unimportant when estimating expected returns Total risk (Systematic + Unsystematic) is the key risk measure one needs to estimate expected returns In a well diversified portfolio, unsystematic risk is largely eliminated A key reason why the risk-return tradeoff is better for portfolios than in individual assets is because combining assets into portfolios reduces unsystematic risk A key reason why the risk-return tradeoff is better for portfolios than in individual assets is because combining assets into portfolios reduces systematic risk
5 - If an equal amount of risk is added to a portfolio moving along the Markowitz Efficient Frontier to the northeast, the return will: Decrease at an increasing rate Decrease at a decreasing rate Increase at an increasing rate Increase at a decreasing rate Remain constant None of the above answers 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.
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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