Part I (Based on the video): Fully watch the video and answer the following questions. vQuestion 1: According to the video, how do we define risk? Question 2: According to the video, how would the risk of a portfolio consisting of stocks from a variety of economic sectors compare to one consisting of stocks from just one sector? What is the technical finance term for this concept? Question 3: According to the video, what is the difference between std. dev. and beta in terms of measuring risk? Question 4: According to the video, what are some caveats associated with CAPM? Question 5: According to the video, what is the difference between systematic and unsystematic risk? How is each type of risk impacted by holding a well-diversified portfolio? Part II Question 1: You invest in a portfolio of 5 stocks with an equal investment in each one. The betas of the 5 stocks are as follows: .8, -1.3, .95, 1.2 and 1.4. The risk-free return is 3% and the market return is 7%. A. Compute the beta of the portfolio. B. Compute the required return of the portfolio. Question 2: You are given the following probability distribution for a stock: Probability Outcome .5 -6% .5 18% A) Compute the expected return. B) Compute the standard deviation. C) Compute the coefficient of variation. Part III Question 1: What is the rationale for the positive correlation between risk and expected return? Question 2: Why is it possible to eliminate unsystematic risk in a well-diversified portfolio? Likewise, why is it not possible to eliminate systematic risk?
Part I (Based on the video): Fully watch the video and answer the following questions. vQuestion 1: According to the video, how do we define risk? Question 2: According to the video, how would the risk of a portfolio consisting of stocks from a variety of economic sectors compare to one consisting of stocks from just one sector? What is the technical finance term for this concept? Question 3: According to the video, what is the difference between std. dev. and beta in terms of measuring risk? Question 4: According to the video, what are some caveats associated with CAPM? Question 5: According to the video, what is the difference between systematic and unsystematic risk? How is each type of risk impacted by holding a well-diversified portfolio? Part II Question 1: You invest in a portfolio of 5 stocks with an equal investment in each one. The betas of the 5 stocks are as follows: .8, -1.3, .95, 1.2 and 1.4. The risk-free return is 3% and the market return is 7%. A. Compute the beta of the portfolio. B. Compute the required return of the portfolio. Question 2: You are given the following probability distribution for a stock: Probability Outcome .5 -6% .5 18% A) Compute the expected return. B) Compute the standard deviation. C) Compute the coefficient of variation. Part III Question 1: What is the rationale for the positive correlation between risk and expected return? Question 2: Why is it possible to eliminate unsystematic risk in a well-diversified portfolio? Likewise, why is it not possible to eliminate systematic risk?
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
Related questions
Question
I need help with Part 2. Never sent an image before, so if this is difficult for you to read or understand then let me know. Thx.
Transcribed Image Text:Part I (Based on the video): Fully watch the video and answer the following questions.
vQuestion 1: According to the video, how do we define risk?
Question 2: According to the video, how would the risk of a portfolio consisting of stocks from a variety
of economic sectors compare to one consisting of stocks from just one sector? What is the technical
finance term for this concept?
Question 3: According to the video, what is the difference between std. dev. and beta in terms of
measuring risk?
Question 4: According to the video, what are some caveats associated with CAPM?
Question 5: According to the video, what is the difference between systematic and unsystematic risk?
How is each type of risk impacted by holding a well-diversified portfolio?
Part II
Question 1: You invest in a portfolio of 5 stocks with an equal investment in each one. The betas of the 5
stocks are as follows: .8, -1.3, .95, 1.2 and 1.4. The risk-free return is 3% and the market return is 7%.
A. Compute the beta of the portfolio.
B. Compute the required return of the portfolio.
Question 2: You are given the following probability distribution for a stock:
Probability
Outcome
.5
-6%
.5
18%
A) Compute the expected return.
B) Compute the standard deviation.
C) Compute the coefficient of variation.
Part III
Question 1: What is the rationale for the positive correlation between risk and expected return?
Question 2: Why is it possible to eliminate unsystematic risk in a well-diversified portfolio? Likewise,
why is it not possible to eliminate systematic risk?
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