Questions 19 and 20 are related. Assume that two investors each hold a portfolio, and that portfolio is their only asset. Investor A's portfolio has a beta of minus 2.0, while Investor B's portfolio has a beta of plus 2.0. Assuming that the unsystematic risks of the stocks in the two portfolios are the same, then: the two investors face the same amount of risk. Investor A’s portfolio has more risk than Investor B’s portfolio. Investor B’s portfolio has more risk than Investor A’s portfolio. The relative risk of the portfolios cannot be determined without more information. None of the above answers is correct. With reference to Portfolios A and B in the previous question, the holders of either portfolio could: Lower their risks, and by exactly the same amount, by adding some stocks with beta = 1.0. Lower their risks, and by exactly the same amount, by adding some stocks with beta > 1.0. Lower their risks, and by exactly the same amount, by adding some stocks with beta < 1.0. Increase their risks, and by exactly the same amount, by adding some stocks with beta > 2.0. Increase their risks, and by exactly the same amount, by adding some stocks with beta < -2.0. All of the above answers are correct. None of the above answers is correct.
Questions 19 and 20 are related. Assume that two investors each hold a portfolio, and that portfolio is their only asset. Investor A's portfolio has a beta of minus 2.0, while Investor B's portfolio has a beta of plus 2.0. Assuming that the unsystematic risks of the stocks in the two portfolios are the same, then: the two investors face the same amount of risk. Investor A’s portfolio has more risk than Investor B’s portfolio. Investor B’s portfolio has more risk than Investor A’s portfolio. The relative risk of the portfolios cannot be determined without more information. None of the above answers is correct. With reference to Portfolios A and B in the previous question, the holders of either portfolio could: Lower their risks, and by exactly the same amount, by adding some stocks with beta = 1.0. Lower their risks, and by exactly the same amount, by adding some stocks with beta > 1.0. Lower their risks, and by exactly the same amount, by adding some stocks with beta < 1.0. Increase their risks, and by exactly the same amount, by adding some stocks with beta > 2.0. Increase their risks, and by exactly the same amount, by adding some stocks with beta < -2.0. All of the above answers are correct. None of the above answers is correct.
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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Questions 19 and 20 are related.
- Assume that two investors each hold a portfolio, and that portfolio is their only asset. Investor A's portfolio has a beta of minus 2.0, while Investor B's portfolio has a beta of plus 2.0. Assuming that the unsystematic risks of the stocks in the two portfolios are the same, then:
- the two investors face the same amount of risk.
- Investor A’s portfolio has more risk than Investor B’s portfolio.
- Investor B’s portfolio has more risk than Investor A’s portfolio.
- The relative risk of the portfolios cannot be determined without more information.
- None of the above answers is correct.
- With reference to Portfolios A and B in the previous question, the holders of either portfolio could:
- Lower their risks, and by exactly the same amount, by adding some stocks with beta = 1.0.
- Lower their risks, and by exactly the same amount, by adding some stocks with beta > 1.0.
- Lower their risks, and by exactly the same amount, by adding some stocks with beta < 1.0.
- Increase their risks, and by exactly the same amount, by adding some stocks with beta > 2.0.
- Increase their risks, and by exactly the same amount, by adding some stocks with beta < -2.0.
- All of the above answers are correct.
- None of the above answers is correct.
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