FiltersDone

Question type

Essay

Multiple Choice

Short Answer

True False

Matching

Exam 6: The Meaning and Measurement of Risk and Return

Show Answer

Share

---

All types

Filters

Study FlashcardsPractice ExamLearn

Question 71

Multiple Choice

Review LaterAdd Note

Review Later

Which of the following statements is MOST correct concerning diversification and risk?

A) Risk-averse investors often choose companies from different industries for their portfolios because the correlation of returns is less than if all the companies came from the same industry.
B) Risk-averse investors often select portfolios that include only companies from the same industry group because the familiarity reduces the risk.
C) Only wealthy investors can diversify their portfolios because a portfolio must contain at least 50 stocks to gain the benefits of diversification.
D) Proper diversification generally results in the elimination of risk.

E) A) and D)
F) A) and C)

Correct Answer

verified

Show Answer

Question 72

Essay

Review LaterAdd Note

Review Later

How is risk defined?

Correct Answer

verified

Risk means different things to different...

View Answer

Show Answer

Question 73

Essay

Review LaterAdd Note

Bankers Corp.has a very conservative beta of .7,while Biotech Corp.has a beta of 2.1.Given that the T-bill rate is 5%,and the market is expected to return 15%,what is the expected return of Bankers Corp.,Biotech Corp.,and a portfolio composed of 60% of Bankers Corp.and 40% Biotech Corp.? a.Solve this problem first by weighting the betas to calculate a portfolio beta,and then using CAPM to calculate the portfolio expected return. b.Then solve the problem again by calculating the expected return of each asset and weighting those returns to calculate the portfolio expected return. c.Why is Biotech Corp.'s expected return NOT three times that of Bankers Corp.?

The slope of the characteristic line of a security is that security's beta.

Another name for an asset's expected rate of return is holding-period return.

In general,the required rate of return is a function of (1)the time value of money,(2)the risk of an asset,and (3)the investor's attitude toward risk.

Investment A and Investment B both have the same expected return,but Investment A is more risky than Investment B.In the technical jargon of modern portfolio theory,Investment A is said to "dominate" Investment B.

Which of the following statements is MOST correct concerning diversification and risk?

Diversifying among different kinds of assets is called asset allocation.

Of the following different types of securities,which is typically considered most risky?

The relevant variable a financial manager uses to measure returns is

The risk-free rate of interest is 4% and the market risk premium is 9%.Howard Corporation has a beta of 2.0,and last year generated a return of 16% with a standard deviation of returns of 27%.The required return on Howard Corporation stock is

Assume that you have $165,000 invested in a stock whose beta is 1.25,$85,000 invested in a stock whose beta is 2.35,and $235,000 invested in a stock whose beta is 1.11.What is the beta of your portfolio?

A well-diversified portfolio typically has systematic risk equal to about 40% of the portfolio's total risk.

Small company stocks have historically had higher average annual returns than large company stocks,and also a higher risk premium.

Beta is a measurement of the relationship between a security's returns and the general market's returns.

If you were to use the standard deviation as a measure of investment risk,which of the following has historically been the highest risk investment?

Green Company stock has a beta of 2 and a required return of 23%,while Gold Company stock has a beta of 1.0 and a required return of 14%.The standard deviation of returns for Green Company is 10% more than the standard deviation for Gold Company.The expected return on the market portfolio according to the CAPM is

Most stocks have betas between

The portfolio beta is simply the sum of the betas of the individual stocks in the portfolio.