Choose the correct answer for the following: (1) Which is the best measure of risk for choosing an asset which is to be held in isolation? (2) Which is the best measure for choosing an asset to be held as part of a diversified portfolio? O Variance; correlation coefficient. O Standard deviation; correlation coefficient. O Beta; variance. O Coefficient of variation; beta. O Beta; beta.

Choose the correct answer for the following: (1) Which is the best measure of risk for choosing an asset which is to be held in isolation? (2) Which is the best measure for choosing an asset to be held as part of a diversified portfolio? O Variance; correlation coefficient. O Standard deviation; correlation coefficient. O Beta; variance. O Coefficient of variation; beta. O Beta; beta.

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter6: Risk And Return

Section: Chapter Questions

Problem 1Q

See similar textbooks

Similar questions

Q .1 What is the Sharpe measure of:i. Portfolio A?ii. Portfolio C?iii. Portfolio E? Q.2 What is the Treynor measure of:i. Portfolio A?ii. Portfolio C?iii. Portfolio E?
QUESTION 2 For which type of risk do you get rewarded with a higher expected return? a. Firm-specific risk Ob. Total risk C. Diversifiable risk d. Unknown е. Systematic risk
Supposing the return from an investment has the following probability distribution Return Probability R (%) 8 0.2 10 0.2 12 0.5 14 0.1 Required: What is the expected return of the investment? What is the risk as measured by the standard deviation of expected returns?
4.32 Investment risk analysis. The risk of a portfolio of financial assets is sometimes called investment risk. In general, in- vestment risk is typically measured by computing the vari- ance or standard deviation of the probability distribution that describes the decision maker's potential outcomes (gains or losses). The greater the variation in potential outcomes, the greater the uncertainty faced by the decision maker; the smaller the variation in potential outcomes, the more predictable the decision maker's gains or losses. The two discrete probability distributions given in the next table were developed from historical data. They describe the potential total physical damage losses next year to the fleets of delivery trucks of two different firms. Loss Next Year SO 500 NW 1,000 1,500 2,000 2.500 Firm A 3.000 3,500 4,000 4,500 5,000 Firm B Probability Loss Next Year 01 SO 0 .01 200 .01 700 1,200 1,700 2,200 2,700 3.200 3.700 4,200 4,700 30 .01 01 Probability 85984579985 .30 a.…
Question 2 Consider an investment portfolio consisting of stocks as well as options on stocks. You would like to determine the value at risk (VaR) for this portfolio and are thinking about the technique to be used. Discuss the problem with using the model-building or variance-covariance approach for determining the VaR of this portfolio.
Which of the following regression outcomes indicates the asset with the greatest total risk? • large beta, small R² • small beta, large R² • small beta, small R² large beta, large R² .
The expected rate of return of an investment ________. a. equals one of the possible rates of return for that investment b. equals the required rate of return for the investment c. is the mean value of the probability distribution of possible returns d. is the median value of the probability distribution of possible returns e. is the mode value of the probability distribution of possible returns
The Sharpe ratio Select one: O is computed using idiosyncratic risk only is computed using systematic risk only Ois maximized for the risk-free asset is the highest for a minimum variance portfolio is the same along the capital market line
which one is correct? QUESTION 6 Given a portfolio of stocks, the envelope curve containing the set of best possible combinations is known as the a. efficient frontier. b. utility curve. c. last frontier. d. efficient portfolio. e. capital asset pricing model.
5. The Sharp ratio of a portfolio is defined as A. the ratio between the return of the portfolio and the variance of return of the portfolio B. the ratio between the excess return (excess return is the difference between the return and the risk-free return) and the variance of the return of the portfolio C. the ratio between the return and the standard deviation of the return of the portfolio D. the ratio between the excess return and the standard deviation of the return of the portfolio
A plot/graph of the positive relation between systematic risk and expected return is called: O security market line standard deviation and width of the normal distribution O covariance graph O capital asset pricing model
On the basis of the utility formula below, which investment would you select if you were risk averse with A = 4? Investment Expected return E(r) Standard deviation σ 1 0.12 0.30 2 0.15 0.50 3 0.21 0.16 4 0.24 0.21