Homework Answers
50. The correct statement is statement is B.
The correlation of an asset's returns to other assets in a portfolio affect the portfolio's risk.
Statement A is wrong. Correlation values range from positive 1 to negative 1.
The lower the correlation between the assets, the higher is the diversification benefits in the portfolio, as the risk is lowest and returns generated is highest.Perfect negative correlation, produces the highest benefits from diversification.
Assets that have perfect correlation with each other , do not produce any diversification benefits.
So, statement C is wrong.
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50. Which of the following is a correct statement? A. The covariance of an asset's returns...
2. Suppose there are three assets with returns r1, r2, and r3 with the covariance matrix given by...
2. Suppose there are three assets with returns r1, r2, and r3 with the covariance matrix given by: 0.01 r" E(R)0.03 r3 0.09 and Var() Cov(ri, r2) Cov(ri,T3) V(R) Cov(ri,r2) Var(r2) Cov(r2,3) 0.01 0.02-0.02 0.06 0.03 (4) Cov(ri, r3) Cov(r2, Var(ra) -0.02 0.03 0.08 (a) Discuss in detail the different properties of the three assets. (b) Calculate the return and variance of a portfolio in which an investor puts 50% in asset 1 and 50% in asset 2, Hint: In...
Which of the following statements about any two stocks is correct? Group of answer choices a....
Which of the following statements about any two stocks is correct? Group of answer choices a. Diversification benefits can be achieved as long as the two stocks have a correlation less than one. b. Diversification benefits can be achieved only when their correlation is less than zero. c. Diversification benefits can be achieved only when their correlation is negative one. d. Diversification benefits can always be achieved between two assets.
Statement True False Because of the effects of diversification, the portfolio's risk is likely to be...
Statement True False Because of the effects of diversification, the portfolio's risk is likely to be more than the average of all stocks' standard deviations. The unsystematic risk com ponent of the total portfolio risk can be reduced by adding negatively correlated stocks to the portfolio. A portfolio's risk is likely to be smaller than the everage of all stocks' standard deviations, because diversification lowers the portfolio's risk. Portfolio risk will increase if more stocks that are negatively correlated with...
8. Which of the following most likely has the largest standard deviation of returns? a. Treasury...
8. Which of the following most likely has the largest standard deviation of returns? a. Treasury bills b. US large stocks c. Corporate bonds 9. The standard deviation of portfolio returns is most likely a. less than the weighted average standard deviation of returns of its assets. b. equal to the weighted average standard deviation of returns of its assets. c. greater than the weighted average standard deviation of returns of its assets. 10. The correlation between a risk-free asset...
Term Answer Description Risk A. The potential for variability in the possible outcomes associated with an...
Term Answer Description Risk A. The potential for variability in the possible outcomes associated with an investment. Expected rate of return The portion of an asset's total expected return required by investors as compensation for assuming the additional risks associated with the security, the issuer, and the marketplace. Beta coefficient That portion of an investment's risk calculated as the difference between its total risk and its firm-specific risk. Market risk The mean of the probability distribution of an investment's possible...
98) Which of the following statements is FALSE A) The volatility declines as the number of stocks in a portfolio grows. B) An equally weighted portfolio is a porfolio in which the same amount is...
98) Which of the following statements is FALSE A) The volatility declines as the number of stocks in a portfolio grows. B) An equally weighted portfolio is a porfolio in which the same amount is invested in eadh stock C) As the number of stocks in a portfolio grows large, the variance of the portfolio is determined primarily by the average covariance among the stocks D) When combining stocks into a portfolio that puts positive weight on each stock, unless...
Term Answer Description Risk A. The risk of an asset when it is the only asset...
Term Answer Description Risk A. The risk of an asset when it is the only asset in an investor's portfolio. Expected rate of return That portion of an investment's risk calculated as the difference between its total risk and its firm-specific risk. Beta coefficient This model determines the appropriate required return on a security as the sum of the market's risk-free rate and a risk premium based on the market's risk premium and the security's beta coefficient. Market risk The...
#5 and #8 please help de portfolio e portfolio's T useu two-fold the two-fold, then the...
#5 and #8 please help
de portfolio e portfolio's T useu two-fold the two-fold, then the required return should incre urn? Lastly, a porti Describe the ribe the difference between the correlation coefficient between asset's beta coefficient. coefficient between two random variables and an more concise va ortfolio il 63) Support or reject the following statement, "Diversification reduces the total risk & What is the difference between systematic and unsystematic risk? 7 Support or reject the following statement," It is...
od The capital asset pricing model (CAPM) explains how risk should be considered when stocks and...
od The capital asset pricing model (CAPM) explains how risk should be considered when stocks and other assets are held -Select- The CAPM states that any stock's required rate of return is -Select the risk-free rate of return plus a risk premium that reflects only the risk remaining -Select- diversification. Most individuals hold stocks in portfolios. The risk of a stock held in a portfolio is typically -Select the stock's risk when it is held alone. Therefore, the risk and...
2. 3: Risk and Rates of Return: Risk in Portfolio Context Risk and Rates of Return:...
2. 3: Risk and Rates of Return: Risk in Portfolio Context Risk
and Rates of Return: Risk in Portfolio Context The capital asset
pricing model (CAPM) explains how risk should be considered when
stocks and other assets are held . The CAPM states that any stock's
required rate of return is the risk-free rate of return plus a risk
premium that reflects only the risk remaining diversification. Most
individuals hold stocks in portfolios. The risk of a stock held in...
2. Suppose there are three assets with returns r1, r2, and r3 with the covariance matrix given by: 0.01 r" E(R)0.03 r3 0.09 and Var() Cov(ri, r2) Cov(ri,T3) V(R) Cov(ri,r2) Var(r2) Cov(r2,3) 0.01 0.02-0.02 0.06 0.03 (4) Cov(ri, r3) Cov(r2, Var(ra) -0.02 0.03 0.08 (a) Discuss in detail the different properties of the three assets. (b) Calculate the return and variance of a portfolio in which an investor puts 50% in asset 1 and 50% in asset 2, Hint: In...
Statement True False Because of the effects of diversification, the portfolio's risk is likely to be more than the average of all stocks' standard deviations. The unsystematic risk com ponent of the total portfolio risk can be reduced by adding negatively correlated stocks to the portfolio. A portfolio's risk is likely to be smaller than the everage of all stocks' standard deviations, because diversification lowers the portfolio's risk. Portfolio risk will increase if more stocks that are negatively correlated with...
8. Which of the following most likely has the largest standard deviation of returns? a. Treasury bills b. US large stocks c. Corporate bonds 9. The standard deviation of portfolio returns is most likely a. less than the weighted average standard deviation of returns of its assets. b. equal to the weighted average standard deviation of returns of its assets. c. greater than the weighted average standard deviation of returns of its assets. 10. The correlation between a risk-free asset...
Term Answer Description Risk A. The potential for variability in the possible outcomes associated with an investment. Expected rate of return The portion of an asset's total expected return required by investors as compensation for assuming the additional risks associated with the security, the issuer, and the marketplace. Beta coefficient That portion of an investment's risk calculated as the difference between its total risk and its firm-specific risk. Market risk The mean of the probability distribution of an investment's possible...
98) Which of the following statements is FALSE A) The volatility declines as the number of stocks in a portfolio grows. B) An equally weighted portfolio is a porfolio in which the same amount is invested in eadh stock C) As the number of stocks in a portfolio grows large, the variance of the portfolio is determined primarily by the average covariance among the stocks D) When combining stocks into a portfolio that puts positive weight on each stock, unless...
Term Answer Description Risk A. The risk of an asset when it is the only asset in an investor's portfolio. Expected rate of return That portion of an investment's risk calculated as the difference between its total risk and its firm-specific risk. Beta coefficient This model determines the appropriate required return on a security as the sum of the market's risk-free rate and a risk premium based on the market's risk premium and the security's beta coefficient. Market risk The...
#5 and #8 please help
de portfolio e portfolio's T useu two-fold the two-fold, then the required return should incre urn? Lastly, a porti Describe the ribe the difference between the correlation coefficient between asset's beta coefficient. coefficient between two random variables and an more concise va ortfolio il 63) Support or reject the following statement, "Diversification reduces the total risk & What is the difference between systematic and unsystematic risk? 7 Support or reject the following statement," It is...
od The capital asset pricing model (CAPM) explains how risk should be considered when stocks and other assets are held -Select- The CAPM states that any stock's required rate of return is -Select the risk-free rate of return plus a risk premium that reflects only the risk remaining -Select- diversification. Most individuals hold stocks in portfolios. The risk of a stock held in a portfolio is typically -Select the stock's risk when it is held alone. Therefore, the risk and...
2. 3: Risk and Rates of Return: Risk in Portfolio Context Risk
and Rates of Return: Risk in Portfolio Context The capital asset
pricing model (CAPM) explains how risk should be considered when
stocks and other assets are held . The CAPM states that any stock's
required rate of return is the risk-free rate of return plus a risk
premium that reflects only the risk remaining diversification. Most
individuals hold stocks in portfolios. The risk of a stock held in...
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