P MindTap HW 6 - Spring 2021 - Fi X* MindTap - Cengage LearningO ) (4) lofi hip hop radio - beats x+ô https://ng.cengage.com/static/nb/ui/evo/index.html?deploymentld=590512258542108435051542&elSBN=9780357114582&id=1062959402..Chelsea v«* CENGAGE MINDTAPQ Search this courseMy HomeHW 63. Portfolio risk and diversificationCoursesA financial planner is examining the portfolios held by several of her clients. Which of the following portfolios is likely to have the smallest standardO Catalog and Study Toolsdeviation?A-Z* Partner OffersO A portfolio with 10 randomly selected international stocks.EE Rental OptionsOficeO A portfolio with 10 randomly selected U.S. stocks.- College Success TipsO A portfolio with 10 randomly selected stocks from U.S. and international markets.Career Success TipsPortfolio managers pick stocks for their clients' portfolios based on the investment objective of the portfolio and several other factors. One keyconsideration is each stock's contribution to portfolio risk and its statistical relationship with the portfolio's other stocks.You are eligible for a FREE 7-day trial of Cengage Unlimitedor Cengage UnlimitedeTextbooksBased on your understanding of portfolio risk, identify whether each statement is true or false.StatementTrueFalseTry for FreeThe unsystematic risk component of the total portfolio risk can be reduced by adding negatively correlated stocks to theportfolio.Learn moreBecause of the effects of diversification, the portfolio's risk is likely to be more than the average of all stocks' standardHelpdeviations.O Give FeedbackA portfolio's risk is likely to be smaller than the average of all stocks' standard deviations, because diversification lowers theportfolio's risk.APortfolio risk will increase if more stocks that are negatively correlated with other stocks are added to the portfolio.

Statement True False The unsystematic risk component of the total portfolio risk can be reduced by adding negatively correlated stocks to the portfolio. Because of the effects of diversification, the portfolio's risk is likely to be more than the average of all stocks' standard deviations. A portfolio's risk is likely to be smaller than the average of all stocks' standard deviations, because diversification lowers the portfolio's risk. Portfolio risk will increase if more stocks that are negatively correlated with other stocks are added to the portfolio.

Statement True False The unsystematic risk component of the total portfolio risk can be reduced by adding negatively correlated stocks to the portfolio. Because of the effects of diversification, the portfolio's risk is likely to be more than the average of all stocks' standard deviations. A portfolio's risk is likely to be smaller than the average of all stocks' standard deviations, because diversification lowers the portfolio's risk. Portfolio risk will increase if more stocks that are negatively correlated with other stocks are added to the portfolio.

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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Higher interest rates imply higher required rates of return, which is generally a negative for stock prices a. True b. False
3 - In a Markowitz portfolio with 2 stocks, if the correlation coefficient between the stocks were to decrease over time with everything else remaining constant, the portfolio’s risk would: Decrease Remain Constant Increase Fluctuate positively and negatively Be a negative value There is not enough information to answer the question
Which of the following is INCORRECT? A. Anticipated returns on any given stock are always greater than 0. B. A negative beta stock has an expected return less than the risk-free rate. C. Two assets with a correlation of -1 could be combined to create a portfolio with a standard deviation of zero (no risk). D. All a stock’s risk could be unsystematic.
Which of the following is NOT a potential problem when estimating and using betas, i.e., which statement is FALSE? a. Sometimes, during a period when the company is undergoing a change such as toward more leverage or riskier assets, the calculated beta will be drastically different from the "true" or "expected future" beta. b. The beta of an "average stock," or "the market," can change over time, sometimes drastically. c. Sometimes the past data used to calculate beta do not reflect the likely risk of the firm for the future because conditions have changed. d. All of the statements above are true. e. The fact that a security or project may not have a past history that can be used as the basis for calculating beta.
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.
“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
I 1. If news comes to the market that suggested that the world stock prices will encounter less variability (variance) for the coming years than in the past, what would this mean for an owner of a portfolio which is mostly composed of call and put options? A. This is great news less variability is less risk, which will help portfolio return B. It is unclear if this news will be beneficial or harmful to the portfolio C. This will have no effect on the portfolio as it is immunized from volatility. D. This will be bad news for the portfolio as it has many options within it and option values are higher when volatility is higher. The answer is D, as options increase in value with greater volatility and with less volatility the portfolio will surely be worthless money. O This is great news less variability is less risk, which will help portfolio return O It is unclear if this news will be beneficial or harmful to the portfolio This will have no effect on the portfolio as it is immunized from…
Questionn 1- Select the incorrect statement about the optimal portfolio weights in the SIM from the following: a. When short sales are not allowed, the investor will hold more assets in her portfolio than when short sales are allowed. b. When the single index is tradeable, securities with negative will be shorted. c. When the single index is tradeable, securities with higher (given everything else constant) are more desirable. d. The investor's portfolio with no short sales is less desirable than the portfolio with short sales.
Which statement about portfolio diversification is correct? Proper diversification can eliminate systematic risk. The risk-reducing benefits of diversification do not occur meaningfully until at least 50-60 individual securities have been purchased. Because diversification reduces a portfolio's total risk, it necessarily reduces the portfolio's expected return. None of the statements are correct.
Please don't provide handwritten solution ....
Question Five: Which of the following is not an assumption that underpins the capital asset pricing model (CAPM)? Investors behave in accordance with Markowitz mean-variance portfolio theory. Investors are rational and risk averse. Investors all invest for the same period of time. Investors have heterogeneous expectations about expected returns and return variances for all assets. There is a risk free rate at which all investors can borrow or lend any amount. Capital markets are perfectly competitive, frictionless and efficient. Question Six: Which of the following expressions best describes the slope of the security market line? The slope of the security market line is equal to the Sharpe ratio. The slope of the security market line is equal to the Treynor ratio. The slope of the security market line is equal to alpha. The slope of the security market line is equal to the market risk premium. The slope of the security market line is equal to the standard deviation of the risky…
Select all that are true with respect to systematic and unsystematic risk. Group of answer choices Systematic risk is unimportant when estimating expected returns Unystematic risk is unimportant when estimating expected returns Total risk (Systematic + Unsystematic) is the key risk measure one needs to estimate expected returns In a well diversified portfolio, unsystematic risk is largely eliminated A key reason why the risk-return tradeoff is better for portfolios than in individual assets is because combining assets into portfolios reduces unsystematic risk A key reason why the risk-return tradeoff is better for portfolios than in individual assets is because combining assets into portfolios reduces systematic risk

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