True or False: Increasing the number of stocks in a portfolio reduces market risk.TrueFalseConsider two stock portfolios. Portfolio X consists of four different stocks from firms in different industries. Portfolio Y consists of 20 different stocks,also from firms in different industries. The return on Portfolio X is likely to bevolatile than that of Portfolio Y.Suppose a stock analyst recommends buying stock in the following companies:CompanyJackson & JacksonFizzerBazerWalredsIndustryPharmaceuticalPharmaceuticalPharmaceuticalPharmaceutical CompanyJackson & JacksonFizzerBazerWalredsCitronZahooAthenaEdidesGeneric MotorsHorizonTUSI YPharmaceuticalPharmaceuticalPharmaceuticalPharmaceuticalTechnologyTechnologyApparelApparelAutomotiveTelecommunicationsEach of the following portfolios contains stock picks from four of the listed companies. Which of the portfolios is the least diversified?Edides, Athena, Citron, ZahooJackson & Jackson, Walreds, Edides, AthenaJackson & Jackson, Fizzer, Bazer, WalredsHorizon, Athena, Generic Motors, Citron

In finance we consider two main kinds of risks – systematic risks and unsystematic risks. Systematic…

True or False: Increasing the number of stocks in a portfolio reduces market risk. True False Consider two stock portfolios. Portfolio X consists of four different stocks from firms in different industries. Portfolio Y consists of 20 different stocks, also from firms in different industries. The return on Portfolio X is likely to be volatile than that of Portfolio Y. Suppose a stock analyst recommends buying stock in the following companies: Company Jackson & Jackson Fizzer Bazer Industry Pharmaceutical Pharmaceutical Pharmaceutical

True or False: Increasing the number of stocks in a portfolio reduces market risk. True False Consider two stock portfolios. Portfolio X consists of four different stocks from firms in different industries. Portfolio Y consists of 20 different stocks, also from firms in different industries. The return on Portfolio X is likely to be volatile than that of Portfolio Y. Suppose a stock analyst recommends buying stock in the following companies: Company Jackson & Jackson Fizzer Bazer Industry Pharmaceutical Pharmaceutical Pharmaceutical

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

See similar textbooks

Similar questions

PART A,B and C are completed. need help in D and E. TIA Unique vs. Market Risk. The figure below shows plots of monthly rates of return on three stocks versus the stock market index. The beta and standard deviation of each stock is given besides its plot. A. Which stock is riskiest to a diversified investor? B. Which stock is riskiest to an undiversified investor who puts all her funds in one of these stocks? C. Consider a portfolio with equal investments in each stock. What would this portfolio’s beta have been? D. Consider a well-diversified portfolio made up of stocks with the same beta as Exxon. What are the beta and standard deviation of this portfolio’s return? The standard deviation of the market portfolio’s return is 20 percent. E. What is the expected rate of return on each stock? Use the capital asset pricing model with a market risk premium of 8 percent. The risk-free rate of interest is 4 percent.
An investor is faced with the decision of whether to invest in a stock with an expected return of 14% or a stock in the same industry with an expected 20% return. Which of the following seems most likely? Multiple Choice the 20% stock is a better investment. the 14% stock is overpriced. Both stocks will have approximately the same return. Both stocks are priced correctly given their perceived risk.
Assume that a risk-averse investor owning stock in Miller Corporation decides to add the stock of either Mac or Green Corporation to her portfolio. All three stocks offer the same expected return and total variability. The correlation of return between Miller and Mac is −.05 and between Miller and Green is +.05. Portfolio risk is expected to:a. Decline more when the investor buys Mac.b. Decline more when the investor buys Green.c. Increase when either Mac or Green is bought.d. Decline or increase, depending on other factors.
(a) (i) Calculate the expected returns and standard deviations of Stock Alpha and Stock Beta. (a) (ii) Assuming that Jerry Tan is a risk-adverse investor, recommend which stock he should select for long term investment. (b) Suppose that Jerry Tan has surplus funds to invest in both stocks, Alpha and Beta. He has decided to form a portfolio with investment in both stocks. The correlation coefficient between the expected return of both stocks is 0.8 and the weightage of investment is 40% for Stock Alpha and 60% for Stock Beta. Required:(i) Compute the expected return, Standard Deviation and Variance of the portfolio. (c) Explain the specific risk and market risk in details, which affecting a company or a group of companies that represent a sector of the stock market. (d) Give THREE (3) reasons why airlines and machine tool manufacturers have substantial macro and market risks.
You have been provided the following information as part of a consultation query:The risk free rate is 3.2%The market risk premium (rM - rRF) is 5.3%Stock A - has a beta of 1.2 betaStock B - has a beta of 0.85 beta (a). What is the required rate of return on each stock? (b). Assume that investors become less willing to take on risk (ie., they become more riskaverse), so the market risk premium rises 6%. Assume that the risk-free rate remains constant. What effect will this have on the required rates of return on the two stocks?
Suppose you are an average risk-averse investor who can purchase only one of the following stocks. Which should you purchased? Explain your reasoning. Investment Expected Return, r Standard Deviation, (r Stock M 6.0% 4.0% Stock N 18.0 12.0 Stock O 12.0 7.0
Syntex, Inc. is considering an investment in one of two common stocks. Given the information that follows, which investment is better, based on the risk (as measured by the standard deviation) and return? Common Stock A Common Stock B Probability Return Probability Return 0.25 13% 0.25 −7% 0.50 14% 0.25 7% 0.25 18% 0.25 16% 0.25 23% (Click on the icon in order to copy its contents into a spreadsheet.) Question content area bottom Part 1 a. Given the information in the table, the expected rate of return for stock A is enter your response here %. (Round to two decimal places.) Part 2 The standard deviation of stock A is enter your response here %. (Round to two decimal places.) Part 3 b. The expected rate of return for stock B is enter your response here %. (Round to two decimal places.) Part 4 The standard deviation for stock B is enter…
If an investor that owns a portfolio with 3 stocks increases their portfolio to 30 stocks, which of the following is MOST LIKELY to happen? Select one: a. risk would increase b. the Sharpe ratio would increase c. return would decrease d. Sharpe would decrease
Syntex, Inc. is considering an investment in one of two common stocks. Given the information that follows, which investment is better, based on the risk (as measured by the standard deviation) and return? Common Stock A Common Stock B Probability Return Probability Return 0.35 13% 0.25 −7% 0.30 17% 0.25 8% 0.35 21% 0.25 15% 0.25 23% (Click on the icon in order to copy its contents into a spreadsheet.) Question content area bottom Part 1 a. Given the information in the table, the expected rate of return for stock A is enter your response here%. (Round to two decimal places.)
(Expected rate of return and risk) Syntex, Inc. is considering an investment in one of two common stocks Given the information that filloors, which investment is better based on the risk (as measured by the standard deviation) and retum? Common Stock A Probability 0,20 0.60 0:20 Return 10% 17% 20% Common Stock B Probability 0.25 0.25 0.25 0.25 (Click on the icon in order to copy its contents into a spreadsheet) Return -6% 5% 16% 23% a. Given the information in the table, the expected rate of retum for stock Ais (Round to two decimal places)
The expected returns for stocks A, B, C, D, and E are 7 %, 10%, 12%, 25%, and 18% respectively. The corresponding standard deviations for these stocks are 12%, 18%, 15%, 23%, and 15% respectively. Based on their coefficients of variation, which of the securities is least risky for an investor? Assume all investors are risk-averse and the investments will be in isolation.Choices:a. Ab. Bc. Cd. De. E
(Expected rate of return and risk) Syntex, Inc. is considering an investment in one of two common stocks. Given the information that follows, which investment is better, based on the risk (as measured by the standard deviation) and return? Common Stock A Probability 0.20 0.60 0.20 Probability 0.15 0.35 0.35 0.15 (Click on the icon in order to copy its contents into a spreadsheet.) Common Stock B Return 13% 14% 18% Return - 6% 7% 15% 21% a. Given the information in the table, the expected rate of return for stock A is 14.6 %. (Round to two decimal places.) The standard deviation of stock A is %. (Round to two decimal places.)

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS