Statements concerning financial risk

Assignment Help Financial Management

Reference no: EM131087921

Which of the following statements concerning financial risk is false?

a. Generically, financial risk is related to the probability of a return that is less than expected.

b. If the returns on two investments move in unison (are perfectly positively correlated), combining the two into a portfolio will lower risk.

c. If the returns on two investments move in unison (are perfectly positively correlated), combining the two into a portfolio will not affect risk.

d. In the real world, it is not possible to create a riskless portfolio because all investment returns, to a greater or lesser extent, move with the overall economy.

e. Assume you know for certain that an investment will return negative 10 percent. (In other words, the probability of a negative 10 percent return is 100 percent.) Although the expected return is negative, the investment is riskless.

Reference no: EM131087921

Questions Cloud

What is expected return on the portfolio : You own a portfolio that has $2,000 invested in Stock A and $3,100 invested in Stock B. Assume the expected returns on these stocks are 10 percent and 16 percent, respectively. Required: What is the expected return on the portfolio?

About the option portfolio : Consider the following option portfolio. You write a July 2007 expiration call option on IBM with exercise price $90. You also write a July expiration IBM put option with exercise price $85. What will be the profit/loss on this position if IBM is sel..

About both technical and fundamental investing : We've just spent time talking in the course about both technical and fundamental investing. Which makes more sense to you and why? There is no correct answer ... plenty of very smart and successful people are on both sides of the argument.

What is the standard deviation of this stock for the past : A stock had returns of 6 percent, –7 percent, 2 percent, and 10 percent over the past 4 years. What is the standard deviation of this stock for the past four years?

Statements concerning financial risk : Which of the following statements concerning financial risk is false?

What is the value of the straight-debt portion of bonds : Herbert Engineering is issuing new 15-year bonds that have warrants attached. If not for the attached warrants, the bonds would carry a 9% annual interest rate. However, with the warrants attached the bonds will pay a 6% annual coupon. There are 30 w..

What are capital structure weights-cost of preferred equity : XYZ corp. currently has 50 million shares of common stock outstanding. Their current market price is $80 per share and have a beta of 1.15. XYZ has $1 billion of bonds outstanding, each with the market value of $1100. What is the cost of preferred eq..

What is the value of the straight-debt portion of the bonds : Thomson Engineering is issuing new 20-year bonds that have warrants attached. If not for the attached warrants, the bonds would carry an 11% annual interest rate. However, with the warrants attached the bonds will pay an 8% annual coupon. There are 3..

All-equity firm-shares of the outstanding stock : Thompson amp; Thomson is an all-equity firm that has 280,000 shares of stock outstanding. The company is in the process of borrowing $2.4 million at 5.5 percent interest to repurchase 75,000 shares of the outstanding stock. What is the value of this ..

User Account

All Pages