Details of this Paper

finance data bank

Description

solution


Question

Question;10.6 Diversification in Stock Portfolios;1) Which of the;following is not a diversifiable risk?;A) The risk that;oil prices rise, increasing production costs;B) The risk of a;product liability lawsuit;C) The risk that;the CEO is killed in a plane crash;D) The risk of a;key employee being hired away by a competitor;2) Which of the;following is not a systematic risk?;A) The risk that;oil prices rise, increasing production costs;B) The risk that;the Federal Reserve raises interest rates;C) The risk that;the economy slows, reducing demand for your firm's products;D) The risk that;your new product will not receive regulatory approval;3) Which of the;following types of risk doesn't belong?;A) Market risk;B) Unique risk;C) Idiosyncratic;risk;D) Unsystematic;risk;4) Which of the;following types of risk doesn't belong?;A) Idiosyncratic;risk;B);Undiversifiable risk;C) Market risk;D) Systematic;risk;5) Which of the;following statements is false?;A) Firm specific;news is good or bad news about the company itself.;B) Firms are;affected by both systematic and firm-specific risk.;C) When firms;carry both types of risk, only the firm-specific risk will be diversified when;we combine many firms' stocks into a portfolio.;D) The risk;premium for a stock is affected by its idiosyncratic risk.;6) Which of the;following statements is false?;A) Because;investors are risk averse, they will demand a risk premium to hold unsystematic;risk.;B) Over any;given period, the risk of holding a stock is that the dividends plus the final;stock price will be higher or lower than expected, which makes the realized;return risky.;C) The risk;premium for diversifiable risk is zero, so investors are not compensated for;holding firm-specific risk.;D) Because;investors can eliminate firm-specific risk "for free" by diversifying;their portfolios, they will not require a reward or risk premium for holding;it.;7) Which of the;following statements is false?;A) Fluctuations;of a stock's returns that are due to firm-specific news are common risks.;B) The;volatility in a large portfolio will decline until only the systematic risk;remains.;C) When we;combine many stocks in a large portfolio, the firm-specific risks for each;stock will average out and be diversified.;D) The risk;premium of a security is determined by its systematic risk and does not depend;on its diversifiable risk.;8) Consider a;portfolio that consists of an equal investment in 20 firms. For each of these;firms, there is a 70% probability that the firms will have a 16% return and a;30% that they will have a - 8% return. Each of these firms returns are;independent of each other. The standard deviation of this portfolio is closest;to;A) 2.5%;B) 4.2%;C) 8.8%;D) 11.0%;Use the;information for the question(s) below.;Consider an;economy with two types of firms, S and I.;S firms always move together, but I firms move independently of each;other. For both types of firms there is;a 70% probability that the firm will have a 20% return and a 30% probability;that the firm will have a -30% return.;9) What is the;expected return for an individual firm?;A) 14%;B) 3%;C) 5%;D) -5%;10) The standard;deviation for the return on an individual firm is closest to;A) 23.0%;B) 5.25%;C) 15.0%;D) 10.0%;11) The standard;deviation for the return on an portfolio of 20 type S firms is closest to;A) 5.10%;B) 23.0%;C) 15.0%;D) 5.25%;12) The standard;deviation for the return on an portfolio of 20 type I firms is closest to;A) 5.25%;B) 5.10%;C) 15.0%;D) 23.0%

 

Paper#51076 | Written in 18-Jul-2015

Price : $22
SiteLock