sk is the potential for an investment to generate more than one return. A security that will produce only one known return is referred to as a risk-free asset, as there is no potential for deviation from the known expected outcome. Investments that have the chance of producing more than one possible outcome are called risky assets. Risk, or potential variability in an investment’s possible returns, occurs when there is uncertainty about an investment’s future outcome, such as the return expected to be generated by the investment and realized by an investor. You invest $100,000 in 40 stocks, 20 bonds, and a certificate of deposit (CD). What kind of risk will you primarily be exposed to? Stand-alone risk Portfolio risk

sk is the potential for an investment to generate more than one return. A security that will produce only one known return is referred to as a risk-free asset, as there is no potential for deviation from the known expected outcome. Investments that have the chance of producing more than one possible outcome are called risky assets. Risk, or potential variability in an investment’s possible returns, occurs when there is uncertainty about an investment’s future outcome, such as the return expected to be generated by the investment and realized by an investor. You invest $100,000 in 40 stocks, 20 bonds, and a certificate of deposit (CD). What kind of risk will you primarily be exposed to? Stand-alone risk Portfolio risk

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 8QTD

See similar textbooks

Similar questions

2. Stock prices and stand-alone risk Risk is the potential for an investment to generate more than one return. A security that will produce only one known return is referred to as a risk-free asset, as there is no potential for deviation from the known expected outcome. Investments that have the chance of producing more than one possible outcome are called risky assets. Risk, or potential variability in an investment's possible returns, occurs when there is uncertainty about an investment's future outcome, such as the return expected to be generated by the investment and realized by an investor. Generally, investors would prefer to invest in assets that have: O A higher-than-average expected rate of return given the perceived risk O A lower-than-average expected rate of return given the perceived risk Read the following descriptions and identify the type of risk or term being described: Description This type of risk relates to the possibility that a firm will not be able to service its…
Systematic risk is defined as: a risk that specifically affects an asset or small group of assets. any risk that affects a large number of assets. any risk that has a huge impact on the return of a security. the random component of return. None of the above.
The capital asset pricing model (CAPM) contends that there is systematic and unsystematic risk for an individual security. Which is the relevant risk variable and why is it relevant? Why is the other risk variable not relevant?
Systematic risk is diversifiable, so it is an investment's relevant risk. Unsystematic risk is O True False
Market risk is portion of a security's stand-alone risk that cannot be eliminated through diversification. True False
True or false: The CAPM states that expected returns depend on an asset’s loading on market risk. Thus, any asset with a standard deviation greater than the standard deviation of the market portfolio must have an expected return greater than the market portfolio, since it is riskier than the market. If this were not the case, no investor would be willing to hold the risky asset in their portfolio, so markets could not clear.
Which is least likely correct about security valuation?a. The calculated or determined value considers the stream of future cash flows.b. The calculated or determined value equals the market price.c. The calculated or determined value considers the risks involved and the opportunity cost.d. The calculated or determined value allows the investors to evaluate whether a security isovervalued or undervalued.e. All of the above
Risk and Return: Introduction Risk is an important concept affecting security prices and rates of return. Risk is the chance that some unfavorable event will occur, and there is a trade-off between risk and return. The higher an investment's risk, the-Select-the return required to induce investors to purchase the asset. This relationship between risk and return indicates that investors are risk ; investors dislike risk and require -Select- Vrates of return as an inducement to buy riskier securities. A represents the additional compensation investors require for bearing risk; it is the difference betweer the expected rate of return on a given risky asset and that on a less risky asset. An asset's risk can be considered in two ways: On a stand-alone basis and in a portfolio context. -Select- -Select-
. The Capital asset Pricing Model (CAPM) contends that there is systematic & unsystematic risk for an individual security. Which is the relevant risk variable & why it’s relevant?
Which 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
A security with only diversifiable risk has an expected return that exceeds the riskfree rate of return. Begin your answer with Consistent or Inconsistent followed by your explanation.
In an efficient market when asset expected returns are plotted against asset betas, then all assets would be on the security market line A. Because all assets have the same beta B. Because no assets have the same risk premium C. Because all assets have the same reward to risk ratio D. Because all assets have the same systematic risk E. Because all assets have the same average amount of systematic risk