Because the diversification benefit from adding another asset declines as the total number of assets in the portfolio increase, most diversification benefit can be achieved with as few as 15 or 20

Q: Adding alternative investments to a traditional portfolio can increase expected returns and reduce…

A: There are certain types of things which are under the control of the business or any person like by…

Q: Optimal portfolios can be obtained without diversification. True or false?

A: optimal portfolio are the one that minimises the risk for given level of return.

Q: As one adds more assets to a portfolio in order to achieve diversification, what will happen to the…

A: Diversification is referred to as the process in which more assets are added by the investors which…

Q: How does the correlation between two stocks change the level of benefit that diversification given…

A: MEANING OF CORRELATION In case the returns of the two securities move in the same direction…

Q: Economy Probability Stock A Stock B Recession -30% -20% 10% 5% 40% 15% Average Boom 0.25 0.50 0.25…

A: Formula for standard deviation in every state of economy is SD =(A-A bar)2*P where A=Return of stock…

Q: The internal rate of return measures the:   Select one:   a. discount rate that the firm uses in…

A: The internal rate of return, also known as the discounting rate, makes discounted future cash flows…

Q: Using a payback period rule tends to bias investors toward Select one: a. riskier investments. b.…

A: Payback period: This method is used to calculate how many years a project will take to recover its…

Q: Which of the following statements regarding non-systematic risk, systematic risk and total risk…

A: Systematic risk is the risk derived from the market and which is measured by the beta of the stock…

Q: Which of the following is true of the cash payback period? a.the longer the payback, the longer the…

A: Payback period is the period under which the amount of investment is expected to be recovered.…

Q: Quantum Corp. is considering purchasing a new milling machine with a useful life of 6 years. The…

A: Payback period is the number of years the project takes to recover its initial investment. formula:…

Q: Asset allocation is performed to A) reduce the load that intermediaries charge maximize the earning…

A: Asset Allocation means the process of allocating money across different financial assets (such as…

Q: Which of the following is false about diversification? Select one or more: a. diversification only…

A: Introduction: Diversification is a risk management strategy. A diversified portfolio have a mix of…

Q: Discounting an investment’s cash flows using the internal rate of return will result in which of the…

A: Introduction: The internal rate of return (IRR) is a research and consulting metric used to assess…

Q: Select all that are true. The risk-return tradeoff is generally worse for individual assets than for…

A: Risk and return are fundamental concepts in finance and investing, especially in the context of…

Q: When market rates of interest rise after a fixed-rate security is purchased, the value of the…

A: Held-to-maturity security:   The debt security which are held by an investor with an intention to…

Q: A disadvantage of using the payback period to compare investmentalternatives is that it;

A: Payback period: The payback period is the time period required to recover the initial investment of…

Q: Assets are priced such that _____________________ increase with the riskiness of future payoffs. A)…

A: Solution:- Payoff means the amount which is receivable on maturity.

Q: The contribution of an individual asset to the riskiness of a fully diversified portfolio depends…

A: A portfolio is made up of two or more than two stocks. A well-diversified portfolio is that…

Q: Given the capital allocation line, an investor's optimal complete portfolio is the portfolio that A)…

A: Capital Allocation Line (or CAL) refers to that line in finance that shows risk and reward profile…

Q: Which of the following is NOT a way to to reduce revenue portfolio risk? Group of answer choices…

A: There are many ways to reduce revenue portfolio risk

Q: True or false: The most important characteristic in determining the expected return of a…

A: Portfolio diversification is a strategic approach to risk management in investment that involves…

Q: If you build a large enough portfolio, you can diversify away all but you will be left with risk. O…

A: In this question, we are required to fill the given blanks.

Q: How will a decrease in time preferences affect the loanable funds market?   A.   There will be an…

A: Decrease in time preferences tells us that individuals in the economy are more patient and more…

Q: 1.2  Problem 1: Answer with a clear true/false, and provide a detailed explanation to substantiate…

A: Diversification refers to a risk management strategy in which variety of assets are combined to…

Q: Select the Incorrect statement concerning the present value index (PVI). Multiple Choice The PVI is…

A: Present value index or profitability index :-  It is ratio of total present value of cash inflows to…

Q: if diversification is desired, would you seek investments with high correlation?

A: The question is based on the concept of risk in investment and diversification effect. The risk…

Q: Select all that are true with respect to diversification and the risk-return trade-off. Group of…

A: Diversification-This is a risk management technique and it involves investments in different asset…

Q: As one adds more assets to a portfolio in order to achieve diversification, the portfolio's risk? O…

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

Q: States Probability Asset M Return Asset N Return Asset O Return Boom 32% 13% 23% 5% Normal 50% 11%…

A: Expected return of investing equally in all three assets = 1/3 * Return on M + 1/3 * Return on N +…

Q: In order to benefit from diversification, the returns on assets in a portfolio must: Answer a. Not…

A: a. Not be perfectly positively correlated   Explanation: Diversification is the process of…

Q: An increase in investor risk aversion would be expected to: Increase the Risk-Free Rate while…

A: We have to assess the impact of the increase in risk aversion on risk free rate and expected return…

Q: if asset A has lower volatility than asset B, then it contributes less to the overall volatility…

A: Volatility is change in expected rate of assets from the mean return and it shows the risk involved…

Q: Identify two disadvantages of using the payback period for comparing investments.

A:

Q: Let rf be the risk free rate of interest. E[r e ] be the expected return of some risky asset.…

A: CAPM: CAPM is also called as Capital assets pricing model. Factors affecting CAPM return are risk…

Q: When the present value of the cash inflows exceeds the initial cost of a project, then the project…

A: If present value of cash inflows exceeds the initial cost of a project, then NPV of the project will…

Q: increased change in value that occurs because longer maturity investments are affected more by…

A: Bonds are a source of investment for investors and bonds are paid an annual coupon and par value is…

Q: What does it mean that portfolio diversification can reduce risk, and how does the efficient…

A: Risk is the measurable probability of loss on an investment. It includes the possibility of losing…

Q: "Combining two assets in a portfolio always provides at least some diversification. benefit." React…

A: The above mentioned step is True.

Q: Financial advisors generally recommend that their clients allocate more to higher risk–return asset…

A: M-V model represent as Mean-Variance model.

Q: Explain why diversifying your portfolio does not always eliminate risk. What are the effects of…

A: The measure of how investments move in respect to one another is asset correlation. Positive…

Q: Unsystematic risk: is compensated for by the risk premium. is measured by standard deviation. is…

A: Unsystematic risk is the risk that the company faces on its own. It is different from systematic…

Q: In general, what effect would a reduction in risk have on “going-in” cap rates? What would this…

A: Capitalization rate is the projected rate of return percentage that a property will make on the…

Q: If we compare the betas of various investment opportunities, why do the assets that have higher…

A: Volatility of a particular stock (or security) is determined by measuring the beta. Beta is an…

Q: Which of the following statements describing the elements of intrinsic valuation is most accurate?…

A: Intrinsic value of any project or any assets is how value being added by asset to value of investors…

Q: Why would an investor prefer a constrained portfolio optimization approach?

A: Portfolio is a collection of securities or investments. Portfolio includes stocks, bonds, cash…

Q: If net present values are used to evaluate two investments that have equal costs and equal total…

A: Net Present Value is determined by discounting net cash flows by an appropriate required rate of…