In a general well-diversified portfolio has less less risk that a portfolio highly concentrated in one asset group, true or false Part 2 In general a firm with a high price earnings ratio has high growth opportunities, true or false?

In a general well-diversified portfolio has less less risk that a portfolio highly concentrated in one asset group, true or false Part 2 In general a firm with a high price earnings ratio has high growth opportunities, true or false?

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter2: Risk And Return: Part I

Section: Chapter Questions

Problem 9MC

See similar textbooks

Similar questions

According to modern portfolio theory, the idea that investors with different indifference curves will hold the same portfolio of risky securities is a result of O a. the separation theorem O b. covariance O c. the normal distribution assumption O d. diminishing marginal utility of income
Diversification works because: Select one: a. Portfolios have higher returns than individual assets. O b. Firm-specific risk can be never be reduced. O c. Stocks earn higher returns than bonds. O d. Unsystematic risk exists. O e. Forming stocks into portfolios reduces the standard deviation of returns for each stock.
F2
if asset A has lower volatility than asset B, then it contributes less to the overall volatility when added to a portfolio. True or false?
As risk aversion increases A. a firm's beta will increase. B. investors' required rate of return will increase. C. a firm's beta will decrease. D. investors' required rate of return will decrease.
1. The diversifiable risk of a portfolio: a. Is correlated with systematic risk. b. Can be made sufficiently small. c. Is zero in the real world. d. Is the risk that investors lose because of transaction costs. Which one of the following conditions determines the investor’s overall optimal portfolio? a. The marginal ratio of substitution of the investor’s utility function must be equal to the Sharpe ratio of the optimal risky portfolio. b. The standard-deviation of the overall portfolio in minimised. c. The expected return of the overall portfolio is maximised. d. The slope of the Sharpe-ratio is equal to zero. 4. Markets can never be strong-form efficient because: a. There are too many traders in them. b. Investors are rational. c. Information is costly to acquire. d. All information is public. 5. Which one of the following is not a property of a pure arbitrage portfolio? a. Zero investment. b. Zero systematic risk. c. Positive net return. d. All of the above.
3. Why coefficient of variation is a better measure of risk than standard deviation? 4. What is agency problem and what are the solutions to this problem? 5. What are the different methods to measure the cost of equity for a firm? 6. What is Security Market line with reference to CAPM 7. Write the formula to measure Risk of portfolio comprising of 3 stocks 8. What is Beta in CAPM and what does it measure.
Exposure to systematic or market risk can be reduced by? A. adding low or negative beta stocks to the portfolio. B. investing in a variety of economic sectors. C. cannot be reduced or avoided. D. diversifying internationally.
In portfolio management, risk reduction is achieved by investing in a portfolio in which the securities Question 3 options:1) have a high covariance 2) have a high correlation coefficient 3) have a low coefficient of variation 4) have a lowcovariance 5) are perfectly positively correlated.
Fountain Corporation's economists estimate that a good business environment and a bad business environment are equally likely for the coming year. The managers of the company must choose between two mutually exclusive projects. Assume that the project the company chooses will be the firm's only activity and that the firm will close one year from today. The company is obligated to make a $5,400 payment to bondholders at the end of the year. The projects have the same systematic risk but different volatilities. Consider the following information pertaining to the two projects: Economy Probability .50 .50 Bad Good Low-Volatility Project Payoff $ 5,400 6,550 High-Volatility Project Payoff $ 4,800 7,150 a. What is the expected value of the company if the low-volatility project is undertaken? The high-volatility project? (Do not round intermediate calculations and round your answers to the nearest whole number, e.g., 32.) b. What is the expected value of the company's equity if the…
As one adds more assets to a portfolio in order to achieve diversification, what will happen to the portfolio's risk? OA. 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. B. It will decline until eventually all risk is eliminated. C. It will increase, as the addition of riskier and riskier assets will cause overall portfolio risk to rise. O D. It will remain the same throughout the process, as overall portfolio risk is relatively stable.
Indicate whether the following statements are true or false. a. Investors prefer diversified companies because they are less risky. multiple choice 1 True False b. If stocks were perfectly positively correlated, diversification would not reduce risk. multiple choice 2 True False c. Diversification over a large number of assets completely eliminates risk. multiple choice 3 True False d. Diversification works only when assets are uncorrelated. multiple choice 4 True False e. Diversification reduces the portfolio beta. multiple choice 5 True False f. A portfolio of stocks, each with a beta of 1.0, will have a beta of less than 1.0 unless the returns are perfectly correlated. multiple choice 6 True False g. A stock with a low standard deviation always contributes less to portfolio risk than a stock with a higher standard deviation. multiple choice 7 True…