he main insight of modern portfolio theory is that Multiple Choice the optimal portfolio of risky assets does not depend on the risk preferences of the investors. small stocks offer higher average returns than large stocks. all of the above. investors who are more risk averse will overweight stocks with lower standard deviations. all investors will hold the same mix of the market portfolio and the risk-free asset.

he main insight of modern portfolio theory is that Multiple Choice the optimal portfolio of risky assets does not depend on the risk preferences of the investors. small stocks offer higher average returns than large stocks. all of the above. investors who are more risk averse will overweight stocks with lower standard deviations. all investors will hold the same mix of the market portfolio and the risk-free asset.

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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Similar questions

From the sentences below, choose the one that DOES NOT fit in the concept of diversification. * An investor should investment her/his money in different types of securites because by doing so she/he will be able to create a compensation effect in which the less good performance of some investments can be compensated by the good performance of other investments. A portfolio constructed of different kinds of investments will, on average, have higher returns and a lower risk than any individual investment found within the portfolio. A very well diversified portfolio should be composed by different types of securities, from different sectors and from different geographical locations. Do not put all your eggs in one basket. In order to have the maximum return, an investor should invest all her/his money in the top 5 best stocks of the market.
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.
Describe how adding a risk-free security to modern portfolio theory allows investors to do better than the efficient frontier. Additionally, explain how might the magnitude of the market risk premium impact people's desire to buy stocks?
Which statement is NOT correct? Investors can NOT eliminate market risk by adding more stocks to the portfolio. Firm specific risk cannot be eliminated through diversification. Standard deviation of return is a good measure of total risk for a stand-alone security. The only relevant risk for a well-diversified portfolio is non-diversifiable risk.
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
Which of the following statements concerning the Efficient Market Hypothesis is correct? Select one: a. Stock market prices are based on speculation not on underlying information b. New information that confirms investor expectations should change stock prices c. Stock prices should slowly respond when unexpected information becomes available d. Careful research can help investors earn abnormal profits e. Your return on investment should reflect the riskiness of your portfolio
Which of the following is true regarding the smart investor? Multiple Choice A. They require a risk premium for the risk taken B. They trade in the mornings when the market is least volatile C. They avoid risky investments D. They like investments with betas < 1
“If markets are semistrong-form efficient, investors would only adopt passiveinvestment strategies and buy into an index fund, rather than active strategies wherethey would have a portfolio manager select the components of their portfolios andseek for mispriced equities.” Explain if true or not
Give typing answer with explanation and conclusion
In the standard model of investment management, investors care only for: a. The return and the risk of their portfolio. b. The return, the risk and the degree of ambiguity of their portfolio. c. The return of their portfolio when the market is bullish. d. The relative level of profit they will make in comparison to other investors.
Correct answer needed. Explain also.
Which of the following(s) would be ways to reject the CAPM? a showing that there exist a stock with zero beta with the market earns an expected return higher than the risk free rate b showing that there exist a stock that earns higher expected return than the market c Showing that a portfolio consistently generates a negative alpha d Showing that a certain factor predicts expected return even after controlling for market beta

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