In an equally weighted portfolio with a large number of stocks diversification caneliminate:only systematic risksystematic and unsystematic riskonly unsystematic riskin such a portfolio, diversification has no effect as these risks become negativelycorrelatednone of the aboveWhen holding stocks in a portfolio, investors are compensated for:total risksystematic riskunsystematic riskunique riskall of the aboveWWW Servers just paid a dividend of D0 = $1.00. Analysts expect the company'sdividend to grow by 30% this year, by 10% in Year 2, and at a constant rate of 5% inYear 3 and thereafter. The required return on WWW's stock is 9.00%. What is thebest estimate of the stock's current intrinsic value?$31.50$32.31$33.14$33.99none of the above

A portfolio is a combination of different securities in one basket that is created with the purpose…

Answered: In an equally weighted portfolio with a…

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

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.
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.
This is a general question and no specific numbers are required: You have two stocks and you have calculated the return on the relevant riskless assets for this market. What would the reasons be for choosing one asset over the other and explain why?
None
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
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.
an investment market, understanding the concept of undervalued and overvalued stocks is very important. Hence, a prudent investor must have good knowledge about Beta, Market Rate of Return and Risk Free Rate of Return. Required: a) Being an investor, critically analyse the conditions of undervalued and overvalued stocks
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.
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.
Stock A has more systematic risk than stock B, stock B has more unsystematic risk than stock A, and it is unclear which stock (A or B) has more total risk. Both stock A and stock B have more systematic risk than the market. Which of the following assertions is most consistent with finance theory? Stock B would have a higher expected return than stock A and stock A would have a higher expected return than the market Stock A would have a higher expected return than stock B and stock A would have a higher expected return than the market Stock B would have a higher expected return than stock A and the market would have a higher expected return than stock A Stock A would have a higher expected return than stock B and the market would have a higher expected return than stock A Because it is unclear which stock (A or B) has more total risk, it is unclear which stock (A or B) would have a higher expected return
Which is true with regards to the systematic and unsystematic risk? To mitigate the unsystematic risk, an investor must choose two stocks that has a perfectly negative correlation when establishing ones portfolio of securities A portfolio with stocks that has high Sharpe ratios does not have both unsystematic and systematic risk because then generate excess returns The likes of inflation, recession, changes in interest rates are examples of market risk that can be reduced to zero by a portfolio that is fully diversified Systematic risk can be diversified by choosing stocks that has a small standard deviation but high correlation coefficient since these stocks are less riskier
“There is no alpha in an efficient market”. In light of this statement, briefly describe market efficiency and its forms and why an investor may not be able to locate stocks that provide a positive alpha (undervalued stocks) consistently

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In an equally weighted portfolio with a large number of stocks diversification can eliminate: only systematic risk systematic and unsystematic risk only unsystematic risk in such a portfolio, diversification has no effect as these risks become negatively correlated none of the above