Question

Since it states that systematic risk cannot be eliminated, modern portfolio theory does not allow for...

Since it states that systematic risk cannot be eliminated, modern portfolio theory does not allow for stock index futures contracts.​

In the real-world, financial decisions are irrelevant, so there is really no reason for firms to hedge.​

True or False

Homework Answers

Answer #1

As per modern portfolio theroy ,the idea that owning different kinds of financial assets is less risky than owning only one type. Its key insight is that an asset's risk and return should not be assessed by itself, but by how it contributes to a portfolio's overall risk and return.

Systematic risk refers to the risk common to all securities.

Systematic risks within one market can be managed through a strategy of using both long and short positions within one portfolio that is called hedge.

Given sentence is FALSE.

In investments , risk is always involved, so to reduce that risk diversifying the assets and doing hedge are very good options for a firm.

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