Question

Which one of these statements related to beta is correct?

A. The beta of a risk-free security is set at 1.

B. The higher the beta, the lower the risk of a security.

C. Beta measures the risk of a single security if held in a large, diversified portfolio.

D. Beta measures the total risk of a single security whether held independently or as part of a portfolio.

E. A stock with a high standard deviation will also have a high beta.

Answer #1

Correct option is **C. Beta measures the risk of a single
security if held in a large, diversified portfolio.**

Beta measures the risk of the particular security and beta get assigned for the stated systematic risk of that particular security only.

Option A, B, D and E are false. Commentary in bold below:

A. The beta of a risk-free security is set at 1. >
**Beta of risk free security is Zero**

B. The higher the beta, the lower the risk of a security.
**> Higher beta implies higher risk taken**

D. Beta measures the total risk of a single security whether
held independently or as part of a portfolio > **Beta is
systematic risk measure where are standard deviation is total risk
measure**

E. A stock with a high standard deviation will also have a high
beta. **> There can be possibility that major portion of
risk is occupied by unsystematic risk and small portion is occupied
by systematic risk.**

Which of the following statements is CORRECT?
Select one: a. The beta of a portfolio of stocks is always
smaller than the betas of any of the individual stocks.
b. The beta of a portfolio of stocks is always larger than the
betas of any of the individual stocks.
c. It is theoretically possible for a stock to have a beta of
1.0. If a stock did have a beta of 1.0, then, at least in theory,
its required rate...

QUESTION 1
Part A: Which of the following statements is CORRECT?
a. An investor can eliminate virtually all stand-alone risk if
he or she holds a very large and well diversified portfolio of
stocks.
b. The higher the correlation between the stocks in a portfolio,
the lower the risk inherent in the portfolio.
c. Once a portfolio has about 40 stocks, adding additional
stocks will not reduce its risk by even a small amount.
d. An investor can eliminate virtually...

You are considering investing in one of the these three
stocks:
Stock
Standard Deviation
Beta
E
21%
0.58
L
9%
0.67
G
12%
1.30
If you are a strict risk minimizer, you would choose Stock ____ if
it is to be held in isolation and Stock ____ if it is to be held as
part of a well-diversified portfolio.
Answers: One is correct
E; L.
G; E.
E; E.
L; E.
L; L.

security
beta
Standard deviation
Expected return
S&P 500
1.0
20%
10%
Risk free security
0
0
4%
Stock d
( )
30%
13%
Stock e
0.8
15%
( )
Stock f
1.2
25%
( )
4) You form a complete portfolio by investing $8000 in S&P
500 and $2000 in the risk free security. Given the information
about S&P 500 and the risk free security on the table, figure
out expected return, standard deviation, and a beta for the
complete...

A portfolio invests in a risk-free asset and the market
portfolio has an expected return of 7% and a standard deviation of
10%. Suppose risk-free rate is 5%, and the standard deviation on
the market portfolio is 22%. For simplicity, assume that
correlation between risk-free asset and the market portfolio is
zero and the risk-free asset has a zero standard deviation.
According to the CAPM, which of the following statement is/are
correct?
a. This portfolio has invested roughly 54.55% in...

1A) Risk-averse investors who hold a single stock would require
a higher rate of return on a stock whose standard deviation is 0.33
than on a stock whose standard deviation is 0.18. But, if these
stocks are held as part of a portfolio, it is possible for the
stock with the higher standard deviation to have the lower required
return. True/False?
1B) Ceteris paribus, a change in the beta of a firm's stock will
change the required rate of return...

Which of the following statements concerning the variance are
correct? (note: there can be more than one correct answer)
Group of answer choices
a.The larger the variance, the greater the total risk of the
investment.
b.If a stock portfolio is well diversified, then the portfolio
variance may be less than the variance of the least risky stock in
the portfolio.
c.The larger the variance, the smaller the standard
deviation.
d.The larger the variance, the more the actual returns tend to...

Stock X has a beta of 0.5 and Stock Y has a beta of 1.5. Which
of the following statements is most correct?
Select one:
a. If expected inflation increases (but the market risk premium
is unchanged), the required returns on the two stocks will decrease
by the same amount.
b. If investors' aversion to risk decreases (assume the
risk-free rate unchanged), Stock X will have a larger decline in
its required return than will stock Y.
c. If you...

Stock X has a 10.0% expected return, a beta coefficient of 0.9,
and a 40% standard deviation of expected returns. Stock Y has a
13.0% expected return, a beta coefficient of 1.3, and a 20%
standard deviation. The risk-free rate is 6%, and the market risk
premium is 5%.
Calculate each stock's coefficient of variation. Do not round
intermediate calculations. Round your answers to two decimal
places.
CVx =
CVy =
Which stock is riskier for a diversified investor?
For...

Stock X has a 9.0% expected return, a beta coefficient of 0.7,
and a 35% standard deviation of expected returns. Stock Y has a
13.0% expected return, a beta coefficient of 1.3, and a 25%
standard deviation. The risk-free rate is 6%, and the market risk
premium is 5%.
Calculate each stock's coefficient of variation. Do not round
intermediate calculations. Round your answers to two decimal
places.
CVx =
CVy =
Which stock is riskier for a diversified investor?
For...

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