Question

Which of the following is true about diversification? a. The expected return on a risky asset...

Which of the following is true about diversification?

a. The expected return on a risky asset depends on that asset’s unsystematic risk

b. Portfolio diversification is the investment in several but same asset classes or sectors/industry

c. Beta is a measure of systematic risk

d. There is a large portion of unsystematic risk in a well diversified portfolio

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Answer - Option c

Beta measures the systematic risk within a security or portfolio. Higher the beta, higher the systematic risk.

Option a is incorrect. Expected return on a risky asset depends on asset's systematic risk. Market compensates investor only for systematic portion of total risk.

Option b is incorrect. Portfolio diversification is investment in several assets, which can be from different classes as well.

Option d is incorrect. There is no unsystematic portion in a well-diversified portfolio. Well-diversified portfolio eliminates unsystematic risk.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
26 The systematic risk principle implies that the expected return on an asset depends only on...
26 The systematic risk principle implies that the expected return on an asset depends only on that asset’s: unsystematic risk systematic risk credit risk interest rate risk
1. Asset 1 has a beta of 1.2 and Asset 2 has a beta of 0.6....
1. Asset 1 has a beta of 1.2 and Asset 2 has a beta of 0.6. Which of the following statements is correct? A. Asset 1 is more volatile than Asset 2. B. Asset 1 has a higher expected return than Asset 2. C. In a regression with individual asset’s return as the dependent variable and the market’s return as the independent variable, the R-squared value is higher for Asset 1 than it is for Asset 2. D. All of...
You invest $1000 in a risky asset with an expected rate of return of 0.14 and...
You invest $1000 in a risky asset with an expected rate of return of 0.14 and a standard deviation of 0.20 and a T-bill with a rate of return of 0.06. The risky asset has a beta of 1.4. If you have a risk-aversion parameter of 2.5, what is the beta of your complete portfolio? A. 0.28 B. 0.80 C. 1.00 D. 1.12 E. 1.32
Consider a risky asset with an expected return of 12% and standard deviation of 16%. Assume...
Consider a risky asset with an expected return of 12% and standard deviation of 16%. Assume that the risk free rate is 3%, and that you allocate 70% in the risky asset and the remaining in risk-free T-Bill. Calculate the following: show all formulas and calculations Complete Portfolio’s Expected Return: Complete Portfolio’s Standard Deviation: Risky asset’s Sharpe ratio: Complete Portfolio’s Sharpe ratio:
2. Which one of the followings is not related to Geometric Return or Mean? A. The...
2. Which one of the followings is not related to Geometric Return or Mean? A. The longer the time horizon, the more critical compounding becomes and the more appropriate the use of geometric mean. B. The main benefit of using the geometric mean is the actual amounts invested do not need to be known. C. The geometric mean is the average rate of return of a set of values calculated using the products of the terms. D. The geometric mean...
HW #6 1. Use the following information to answer the questions. State Probability Stock A return...
HW #6 1. Use the following information to answer the questions. State Probability Stock A return Stock B return Good Normal Bad 0.3 0.6 0.1 8% 2% -3% 5% 1% -1% (a). Given that you form a portfolio by investing $4,000 in Stock A and $1,000 in Stock B, what is the expected return on your portfolio? (b).What is the variance and standard deviation of your portfolio? (c). Suppose that Stock A has a beta of 1.5 and Stock B...
Which of the following statements are true regarding UNSYSTEMATIC RISK? I. Unsystematic risk can be effectively...
Which of the following statements are true regarding UNSYSTEMATIC RISK? I. Unsystematic risk can be effectively eliminated through portfolio diversification. II. Unsystematic is compensated for by a risk premium. III. Unsystematic risk is measured by beta. IV. As rational investors hold well-diversified portfolios, the market will not pay a risk premium for holding unsystematic risk. A. I and IV only B. II only C. II and III only. D. I, III, and IV only. E. III and IV only. You...
which of the following statements is true about diversification and risk? With higher number of assets,...
which of the following statements is true about diversification and risk? With higher number of assets, the company specific risk approaches zero and total portfolio risk falls to the systematic risk (market risk) With higher number of assets, the company specific risk approaches the systematic risk (market risk) With higher number of assets, the total portfolio risk increases to the sum of the individual company specific risk and the systematic risk (market risk) With higher number of assets, total portfolio...
You invested $1000 in a risky asset with an expected rate of return of 017 and...
You invested $1000 in a risky asset with an expected rate of return of 017 and standard devation of 040 and a T- bill with a rate of return of 0.04 What is the weight you should put into risky asset to have optimal portfolio if yoyr coeficient of risk aversion A= 4? Thank you,
ou invest $1,000 in a risky asset with an expected rate of return of 0.17 and...
ou invest $1,000 in a risky asset with an expected rate of return of 0.17 and a standard deviation of 0.40 and a T-bill with a rate of return of 0.04. What percentages of your money must be invested in the risky asset and the risk-free asset, respectively, to form a portfolio with an expected return of 0.11? Select one: a. 53.8% and 46.2% b. 75% and 25% c. 62.5% and 37.5% d. 46.2% and 53.8% e. Cannot be determined.
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT