A stock's beta is more relevant as a measure of risk to an investor who holds only one stock than to an investor who holds a well-diversified portfolio. Is this statement TRUE or FALSE? Justify your answer.
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- Which of the following statements related to risk is (are) true: (i) Beta measures risk that cannot be diversified. (ii) As more shares are included in a portfolio the total risk of that portfolio goes down. (iii) Investors are normally risk averse and, therefore, they demand a risk premium.Which of the following statements about 'beta' is correct? Is a measure of stand-alone risk. A low beta means that a stock is more volatile than the market Is a measure of a stock's volatility relative to the market. OA high beta means that a stock is less volatile than the marketWhich of the following is true? a. Beta of a stock cannot be negative b. SML is an acronym for Stock Market Line c. Holding multiple stocks from the same industry is meaningful diversification d. Undiversifiable risk is known as the systematic risk
- State whether the following statement is True or False and explain why. “The return on a risk-free asset and the return on any common stock are perfectly negatively correlated.”What is the difference between a diversifiable riskand a nondiversifiable risk? Should stock portfoliomanagers try to eliminate both types of risk?What is a characteristic line? How is this line used to estimate a stocks beta coefficient? Write out and explain the formula that relates total risk, market risk, and diversifiable risk.
- Which of the following statements concerning the Efficient Market Hypothesis is correct? Select one: a. Stock market prices are based on speculation not on underlying information b. New information that confirms investor expectations should change stock prices c. Stock prices should slowly respond when unexpected information becomes available d. Careful research can help investors earn abnormal profits e. Your return on investment should reflect the riskiness of your portfolioWhen can investors treat beta as a relevant risk measure and when can they treat beta as only a systematic risk measure? Explain the two cases clearly and carefully (Explain using a graph and make sure you label the axes)A stock's standard deviation determines how the stock affects the riskiness of a diversified portfolio; therefore, it is a better measure of a stock's relevant risk than is the beta-coefficient, which measures total, or stand-alone, risk.Choices:a. TRUEb. FALSE
- Q1 .In an investment market , understanding the concept of undervalued and overvalued stock is very important . hence , a prudent investor must have good knowledge about beta, market rate of return and risk free rate of return a) Being an investor , critically analyse the conditions of undervalud and overvalued stockin broad terms, why are some risks diversifiable? Why are some risks non- diversifiable? Does it follow that an investor can control the level of unsystematic risk in a portfolio, but not the level of systematic risk? Substantiate your answer with real world examplesWhen describing the attitude of investors towrds risk, which statement is correct? A.Investors may behave as though they are risk seekers for small investments B.For a risk-averse investor, the standard deviation of the return distribution is a relevant measure of risk C.Investors behave as though they are risk averse for investments of significant size D.All of the above