Which of the following statement(s) are true? a By adding more stocks to my portfolio, I can generally lower the volatility of my portfolio b By adding more stocks to my portfolio, I can generally increase the expected return of my portfolio c By adding more stocks to my portfolio, I can generally increase the Sharpe ratio of my portfolio

Which of the following statement(s) are true? a By adding more stocks to my portfolio, I can generally lower the volatility of my portfolio b By adding more stocks to my portfolio, I can generally increase the expected return of my portfolio c By adding more stocks to my portfolio, I can generally increase the Sharpe ratio of my portfolio

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 6P

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(Portfolio VaR) Suppose there are two investments A and B. Either investment A or B has a 4.5% chance of a loss of $15 million, a 2% chance of a loss of $2 million, and a 93.5% change of a profit of $2 million. The outcomes of these two investments are independent of each other.
If a portfolio has a positive investment in every asset, can the expected return on the portfolio be greater than that on every asset in the portfolio? Can it be less than that on every asset in the portfolio? If you answer yes to one or both of these questions, give an example to support your answer.
When a portfolio consists of only a risky asset and a risk-free asset, increasing the fraction of the overall portfolio invested in the risky asset will a. Increase the expected return and standard deviation of the portfolio b. Increase the standard deviation of the portfolio c. Decrease the standard deviation of the portfolio d. Increase the expected return of the portfolio
Increasing the number of stocks in a portfolio from 10 to 50 would most likely A. Increase the variability of returns of the portfolio B. Increase the unsystematic risk of the portfolio C. Decrease the variability of returns on the portfolio D. Decrease the systematic risk of the portfolio
Select all that are true with respect to the historical risk-return tradeoff for portfolios, and for individual stocks. Group of answer choices For portfolios, the relation between risk and return is positive and quite strong For individual stocks, the relation between risk and return is positive and stronger than for portfolios The relation between risk and return is stronger for portfolios than it is for individual stocks You get a better risk-return tradeoff if you put assets together in a portfolio
Which of the following is true with respect to the big picture of portfolio theory? Group of answer choices When one invests in portfolios, they are guaranteed to get positive returns There is a better relation between risk and return for individual stocks than for portfolios There is a better relation between risk and return for portfolios than for individual assets Harry Markowitz's contribution with respect to portfolio theory can be summarized as "put all your eggs in one basket"
(a) Determine the expected return of security X (b) To reduce the systematic risk of the portfolio, Anna is considering 3 securities to add to the portfolio. Security A has a beta of 0, security B has a beta of 0.5 and Security C has a beta of -0.3. Discuss which security will be most effective in reducing the portfolio’s systematic risk? How would portfolio expected return change (higher or lower) if you add this security?
Assume that you regularly invest in stocks. Explain (using intuition instead of math) how your portfolio of stocks would be affected in response to a higher risk-free rate according to the CAPM. Explain how your portfolio of stocks might be impacted during the economic growth
Consider the following performance data for a portfolio manager: Benchmark Portfolio Index Portfolio Weight Weight Return Return Stocks 0.65 0.7 0.11 0.12 Bonds 0.3 0.25 0.07 0.08 Cash 0.05 0.05 0.03 0.025 a.Calculate the percentage return that can be attributed to the asset allocation decision. b.Calculate the percentage return that can be attributed to the security selection decision.
Is the following statement true or false? Explain your answer. As more securities are added to a portfolio, total risk is generally expected to fall, and fall at a decreasing rate as the number (n) of securities added increases.
Could a more optimal portfolio, that is, one containing some other combination of stocks that would have either increased returns relative to an increase in risk or maintained returns while decreasing risk, been attained by varying the weight (proportion) of the two securities in the portfolio?
Question #1. Portfolio theory tends to define risky investments in terms of just two factors: expected returns and variance (or standard deviation) of those expected returns. What assumptions need to be made about investors and the expected investment returns (one assumption in each case) to justify this ‘two-factor’ approach? Are these assumptions justified in real life? ‘The expected return from a portfolio of securities is the average of the expected returns of the individual securities that make up the portfolio, weighted by the value of the securities in the portfolio.’ ‘The expected standard deviation of returns from a portfolio of securities is the average of the standard deviations of returns of the individual securities that make up the portfolio, weighted by the value of the securities in the portfolio.’ Are these statements correct? What can be said about the portfolio that is represented by any point along the efficient frontier of risky investment portfolios? and What is…

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a	By adding more stocks to my portfolio, I can generally lower the volatility of my portfolio
b	By adding more stocks to my portfolio, I can generally increase the expected return of my portfolio
c	By adding more stocks to my portfolio, I can generally increase the Sharpe ratio of my portfolio