Statements about beta and risk

Assignment Help Financial Management

Reference no: EM131991251

1. Which of the following statements about beta and risk is correct??

a. A security's beta measures its diversifiable (systematic, or market) risk relative to that of other securities.

b. If two stocks have the same standard deviation and the correlation coefficient between the returns of two stocks equals zero, an equally weighted portfolio of the two stocks will have a standard deviation equal to that of the individual stocks.

c. Combining stocks with perfectly positively correlated stock returns into a portfolio is less risky than holding an individual stock since the portfolio will benefit from diversification.

d. A stock's beta is less relevant as a measure of risk to an investor with a well-diversified portfolio than to an investor who holds only one stock.

e. If the returns of two firms are negatively correlated, one of them must have a negative beta.

2. The probability distribution of the payoffs on an investment refers to a _____.

a. measure of the extent to which the payoffs move with the capital market

b. standardized measure of the risk per payoff

c. measure of the tightness, or variability, of a set of payoffs

d. listing of all possible outcomes with a chance of occurrence assigned to each outcome

e. listing of the degree of relationship between the probabilities of two payoffs

Reference no: EM131991251

Questions Cloud

Influence the bottom line in the budget : How does quality in healthcare influence the bottom line in the budget?

Dunkin donuts gets set to run on clean palm oil : How will this practice benefit the consumer and why? How will this practice benefit the organization and why?

Explain components of social-cognitive theory : Use the behavioral personality theory to explain why you have this habit. Describe components of social-cognitive theory that explain why the habit formed.

Enhance feelings of group cohesion and trust : Imagine that you are the leader of a team of retail associates at a sports equipment store. What specific actions you would take to enhance feelings of group.

Statements about beta and risk : Which of the following statements about beta and risk is correct??

What is the price of each bond if required rate of return : What is the price of each bond if the required rate of return (compounded annually) is (1) 4% per annum;

Why hume think that past experience cannot give us knowledge : Why does Hume think that past experience cannot give us knowledge of the future? The response must be typed, single spaced.

How can fcf in the terminal year of project life : How can FCF in the terminal year of a project’s life differ from FCF in the other years? Provide an example.

Differentiation-cost focus and differentiation focus : Explain the four generic strategies: cost leadership, differentiation, cost focus, and differentiation focus.

User Account

All Pages