HomeworkLib
Question

how and why should the process of risk analysis be different for an investor who was...

how and why should the process of risk analysis be different for an investor who was simply trying to determine which stocks to add to a well- diversifieed portfolio?
business   finance   
0 0
Add a comment Improve this question Transcribed image text
Next > < Previous
Sort answers by oldest

Homework Answers

Answer #1

A well-diversified portfolio is the one that consists of different types of securities.

A different risk analysis should be done as there are different types securities that are linked with different sectors and industries.

Therefore, different risk analysis should be done for different areas of securities, when a different stock is added to the portfolio.

The portfolio is constructed in such a way that the risk is minimized.

Process of risk analysis:

  • The risk analysis should be done by analyzing the factors that are influencing the risk such as the market conditions, inflation etc.

  • It is done by assessing the risky areas and plans are to be avoid such risk.

  • Implement the plan of risk management plan.

  • Evaluate the performance of the securities.

  • Review the riskiness of the portfolio.

  • If there is any discrepancy in the stock performance remove the stock and add different stock.

  • Revise the portfolio.

0 0
Add a comment
Know the answer?
Add Answer to:
how and why should the process of risk analysis be different for an investor who was...
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. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions

  • PVIDED BEO0 PART B: MULTIPLE CHOICE. USE THE ANSWER SHEET 1. Consider an investor who welcomes...

    PVIDED BEO0 PART B: MULTIPLE CHOICE. USE THE ANSWER SHEET 1. Consider an investor who welcomes above-average portfolio risk. Which of the following statements (a) The investor is likely to be comfortable investing in a portfolio that consists of few stocks (b) The investor does not seek a high level of portfolio diversification. (c) The investor actively seeks to reduce the potential volatility of a portfolio. (d) The investor does not seek to add a negative-beta stock to a portfolio....

  • Using historical data to measure portfolio risk and correlation coefficient Carlos is an investor who believes...

    Using historical data to measure portfolio risk and correlation coefficient Carlos is an investor who believes that past variability of stocks isa reasonably good estimate of future risk associated with the stocks. Carlos works on creating a new portfolio and has already purchased stock A. Now he considers tv.'o ether stocks, B and C. Carlos collected data on the historic rates of return for all three stocks, which are presented in the following table. Complete the table by calculating standard...

  • 7. Using historical data to measure portfolio risk and correlation coefficient Peter is an investor who...

    7. Using historical data to measure portfolio risk and correlation coefficient Peter is an investor who believes that past variability of stocks is a reasonably good estimate of future risk associated with the stocks. Peter works on creating a new portfolio and has already purchased stock A. Now he considers two other stocks, B and C. Peter collected data on the historic rates of return for all three stocks, which are presented in the following table. Complete the table by...

  • Consider an investor who owns two stocks. Google Inc. (GOOGL) has an expected return of 8...

    Consider an investor who owns two stocks. Google Inc. (GOOGL) has an expected return of 8 percent, and the investor owns $15,000 worth of the stock and he also owns $10,000 of Amazon Inc. (AMZN), which has an expected return of 6 percent. What is the expected return of his portfolio? The correlation between the two stocks is ? = ‒ 0.4. What is the standard deviation of the portfolio if the standard deviations of the two stocks are ??????...

  • 1. Diversification cannot reduce the portfolio risk if you invest different stocks in the same industry. ...

    1. Diversification cannot reduce the portfolio risk if you invest different stocks in the same industry.  Why?  Explain.  Diversification reduces the portfolio risk if you invest different stocks in the different industries.  Why?  Explain. 2. If you would like to form your stock investment portfolio, (1) how many stocks would you include in the portfolio, and (2) what are these stocks (companies) in the portfolio.  Explain why you choose these companies.

  • Typically, a risk averse investor has to have his investment portfolio more heavily weighted toward bonds...

    Typically, a risk averse investor has to have his investment portfolio more heavily weighted toward bonds than stocks than would an investor who would be willing to accept more risk correct or incorrect?

  • 3. A moderately risk-averse investor has 50% of her portfolio invested in stocks and 50% in...

    3. A moderately risk-averse investor has 50% of her portfolio invested in stocks and 50% in risk-free Treasury bills. Show how each of the following events will affect the investor’s budget line and the proportion of stocks in her portfolio: (i). The return on risk-free Treasury bills decreases.

  • An investor who wishes to form a portfolio that lies to the right (i.e. riskier) of...

    An investor who wishes to form a portfolio that lies to the right (i.e. riskier) of the Dominant Portfolio on the CML must: A: borrow money at the risk-free rate and invest in the optimal risky portfolio. B: borrow money at the risk-free rate and invest in the riskiest securities in the optimal portfolio. C: select higher beta stocks to include in the optimal risky portfolio. D :lend some of her money at the risk-free rate and invest the remainder...

  • 17) An investor has a choice of investing in one of two different mutual funds. a...

    17) An investor has a choice of investing in one of two different mutual funds. a portfolio A and the second fund has a portfolio B comprised of the same stoc different weights. If the risk free rate of return is 2% and the expected mal which portfolio(s) would you advise the investor to accept? nerent mutual funds. The first fund has prised of the same stocks as A but with mnd the expected market return is 12%, Asset 1...

  • QUESTION 16 If an investor buys at least 50 stocks from different industries, he or she...

    QUESTION 16 If an investor buys at least 50 stocks from different industries, he or she can, through diversification, eliminate all of the company-specific risk inherent in owning stocks, but as a general rule it will not be possible to eliminate all market (systematic) risk. True False 3.5 points    QUESTION 17 Stock A's beta is 0.5 and Stock B's beta is 1.5. Which of the following statements must be true about these securities? (Assume market equilibrium.) When held in...

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT