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Investors do not get compensated for holding on to diversifiable risk. True False
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- Few rational investors hold portfolios of assets, and they are more concerned with the risk of their portfolios than with the risk of individual assets.true or falseSystematic risk is diversifiable, so it is an investment's relevant risk. Unsystematic risk is O True False1. Which of the following statements is false? a. Risk neutrality means that an investor are not looking at risk in an investment, just returns. b. Risk aversion means that an investor prefer a fixed amount with certainty over a larger amount with risk. c. Risk seeking means that an investor is willing to accept the higher risk that goes with higher payoff. d. All of the above are false. e. None of the above are false.
- Diversification will reduce risk is securities returns are negatively correlated. TRUE FALSEMNCs generally do not need to hedge because shareholders can hedge their own risk. Group of answer choices True FalseWhy is it reasonable to ignore diversifiable risk and care only about nondiversififiable risk? What about an investor who puts all of his money into only a single risky stock? Can he properly ignore diversififiable risk?
- Equity investors expect to be compensated for two things: diversifiable risk and non-diversifiable risk. True or FalseMarket risk is portion of a security's stand-alone risk that cannot be eliminated through diversification. True FalseWhich one of the following statements is correct concerning unsystematic risk? An investor is rewarded for assuming unsystematic risk. Beta measures the level of unsystematic risk inherent in an individual security. Eliminating unsystematic risk is the responsibility of the individual investor. Standard deviation is a measure of unsystematic risk. Unsystematic risk is rewarded when it exceeds the market level of unsystematic risk. оо O O
- In a few sentences, answer the following question as completely as you can. We routinely assume that investors are “risk-averse return-seekers” (i.e., they like returns and dislike risk). If so, why do we contend that only systematic risk is important? Alternatively, why is total risk, on its own, not important to investors?Without considering the fact that the money deposited in the margin account earns interest, a hedger might take a wrong hedging position which turns it into a speculative one. True FalseHow can an investor eliminate Unsystematic Risk?