Answered: Which of the following statements is…

Business

Finance

Which of the following statements is most correct?

Financial Reporting, Financial Statement Analysis and Valuation

8th Edition

ISBN:9781285190907

Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Publisher:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Chapter11: Risk-adjusted Expected Rates Of Return And The Dividends Valuation Approach

Section: Chapter Questions

Problem 5QE

See similar textbooks

Related questions

Q: An investor who believes that markets are efficient should follow: A. An active management strategy…

A: the passive investment strategy is a strategy to maximize returns, the investor minimizes his…

Q: Which of the following statements about the Fama-French three-factor model is wrong: A. Company…

A: Fama- French model is an advanced version of CAPM. It is a three more factor model which is more…

Q: Which of the following statements is incorrect? Select one: A. It is possible for markets to be…

A: According to the efficient market hypothesis, all the information available in the market is…

Q: Hedging is a risk management strategy that is used in limiting or offsetting probability of loss…

A: Financial risk managers analyse the market trend and accordingly take financial decisions.Roles and…

Q: The M&M Model of Modigliani and Miller is based upon the assumptions that: C. Capital markets are…

A: Corporate finance is referred as the decision of the firm to take capital investments and other…

Q: Capital Asset Pricing Model is based on certain assumptions, which have been criticized after…

A: Asset pricing is a linear function of the beta value of market return: When the market returns…

Q: The advantage of risk-sharing of financial institutions is Select one: reduced liquidity…

A: Financial institutions like insurers which share risk of others have advantages to customers.

Q: 3. As an investor, you are interested in creating a portfolio of assets that can reduce the overall…

A: A portfolio of assets are a combination of different assets which are such that they reduce the…

Q: Statement 1: Fundamental analysis is superior to technical analysis because it gives accurate…

A: Fundamental Analysis:- The ultimate aim Fundamental Analysis (FA) is to arrive at a figure that can…

Q: Why does Limitations of Portfolio analysis is It is not always clear what makes an industry…

A: Solution- Duration Duration is the number of years until which the investor will receive the…

Q: If the security market is efficient in the strong form, then _____. Group of answer choices a. it…

A: There are three forms of market hypothesis weak form, semi-strong form and strong form

Q: What is meant by excessive portfolio turnover? Which behavioral bias is primarily responsible for…

A: Portfolio turnover is a measure of how quickly the management of a fund buy or sell shares over a…

Q: Which one of the following statements about book value and market value is correct? Group of answer…

A: Book values are based on the historical performance of the company. But market value gives the…

Q: In theory, market risk should be the only “relevant” risk. However, companies focus asmuch on…

A: Stand-alone risk: Stand-alone risk is the risk related with the anticipated project cash flow. The…

Q: Suppose that the price of an asset equals its fundamental value. What behavioral features might then…

Q: True or False A.) An advantage of the discounted cashflow valuation method is that it is less…

A: Note : As per the guidelines, only first three parts will be solved kindly post the remaining parts…

Q: Which of the following is not a factor that a firm's management take into consideration when…

A: Short-term financing policy refers to policy in which funds requirements are for less than one year…

Q: Why does the Limitation of Portfolio analysis is It suggests the use of standard strategies that can…

A: The combination of investments undertaken to minimize the risk and maximize the return is called…

Q: Diversification can reduce or eliminate __________ risk. Group of answer choices all market…

A: Portfolio refers to basket of different financial assets in which investment is made by single…

Q: Efficient Markets Hypothesis imply that investment strategies purely based on publicly available…

A: The Efficient Market Hypothesis (EMH) argues that the stocks currently trading on exchanges reflect…

Q: Why does Portfolio analysis limitation is it suggests the use of standard strategies that can miss…

A: Portfolios analysis is the method through which the corporations view their business units and…

Q: Why is it preferred to have assets with negatively correlated returns in a well-diversified…

A: Correlation means degree to which two variance move in coordination of each other. Correlation is…

Q: Even if behavioral biases do not affect equilibrium asset prices, why might it still be important…

A: Answer: There exist two reasons why the behavioral biases do not impact equilibrium asset prices.…

Q: According to Capital Asset Pricing theory (CAPM), in a competitive marketplace: Group of answer…

A: Capital Asset Pricing Model(CAPM) is an investment tool used to determine the fair valuation of…

Q: Which of the following statements is TRUE about risk-free investment? a. Return in risk-free…

A: Risk free investment is an investment which gives low consistent returns and is a safe, secure…

Q: The general arbitrage pricing theory (APT) differs from the single-factor capital asset pricing…

A: Arbitrage Pricing theory and Capital asset pricing model are the models used for determining the…

Q: Firms will take investments only when expected risks are remunerated by expected profit. * a.…

A: Every investment comes with its own set of benefits and risks. Every company must make a decision on…

Q: In general, an MNC's size, its access to international capital markets, and international…

A: The answer and the explanation is provided below:

Q: Which of the following is a criticism of a policy of maximizing the firm’s return on equity (ROE)?…

A: The question is based on the concept return on equity (ROE) ROE is a part of ratio analysis to find…

Q: Which of the following is TRUE about the strong form of market efficiency? Insider information…

A: Market Efficiency Hypothesis (MEH) is an assumption which states that prices of the securities/stock…

Q: Many firms still use the internal rate of return rule instead of net present value. When used…

A: The net present value (NPV) and internal rate of return (IRR) are the methods that are used for the…

Q: offer savers a safer, more liquid investment than a capital market security, even though the…

A: Financial intermediaries are professional firms who have knowledge and expertise and experience so…

Q: Portfolio analysis does, however, have some very real limitations that have caused some companiesto…

A: Portfolios are the collection and a group of various investments that are put in one basket. The…

Q: Concerning the EBIT-EPS indifference analysis, which of the following statements is accurate? If…

A: EBIT-EPS analysis is the financial tool used to evaluated different alternatives of project…

Q: This type of risk is related to overall market or the economy and it is Non-diversifiable. However,…

A: Risk is an uncertainty of loss whereas in finance it is related to financial loss. There are two…

Q: In theory, should a firm be equally concerned with stand-alone,corporate, and market risk? Would…

A: Introduction: Risk can be characterised in terms of the uncertainty of future consequences resulting…

Q: Which of the following statements regarding arbitrage is the most correct? A) Any situation in…

Q: Why the limitation of portfilio analysis is it naively following the prescriptions of a portfolio…

A: In general, small businesses will offer only one product or service. But as the expansion of…

Q: Company X is more exposed to market risk than Company Y. Company> can compensate for this by using…

A: Financial leverage means the change in EPS due to change in EBIT. When a firm has positive financial…

Q: Investing imbalance in global markets is a process of international diversification with the asset…

A: International diversification is a process of investing in certain asset classes globally such that…

Q: 5. Which of the following statements best describe risk in financial planning? A. The degree of…

A: Risk in Financial planning have following features 1. Uncertainty of success or failure of…

Q: investment anomalies and biases that illustrate investor’s deviation from CAPM.

A: Capital Asset Pricing Model (CAPM) is used as a relationship between the required rate of return and…

Q: What are options in strategy

A: Definition: "Options are financial derivatives that give buyers the right, but not the obligation,…

Q: Which of the following best describes the most common criticisms of the investment styles of Warren…

A: An investor's or money manager's investing style is the strategy and philosophy he or she use while…

Question

Which of the following statements is most correct? (Ch. 8)

Group of answer choices

Diversification does not affect risk.

Diversification works better when investments are concentrated within one industry rather than across all industries.

As an investment strategy, diversification should generally be avoided.

Diversification eliminates market risk (also known as systematic or non-diversifiable risk).

Diversification eliminates firm-specific risk (also known as non-systematic or diversifiable risk).

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

Which of the following is false about diversification? Select one or more: a. diversification only works when returns on investments move in different ways b. diversification results in higher Sharpe ratios c. diversification reduces risk d. diversification eliminates risk
Discuss how diversification reduces firm specific risk.
Which of the following statements is true? Group of answer choices The Principle of Diversification states that investors are better off by investing in one asset. The Principle of Diversification states that investors are better off by investing in different types of assets. The Principle of Diversification states that investors are better off by investing in risk-free assets. The Principle of Diversification states that investors are better off by investing in an industry of their choice.
Diversification can reduce or eliminate __________ risk. Group of answer choices all market firm-specific systematic
Select all that are true with respect to why it is that systematic (and not unsystematic) risk is what matters when trying to understand discount rates. Group of answer choices Because systematic risk can be cheaply/easily eliminated through diversification Because discount rates are fully determined by an individual asset's risk Because unsystematic risk can be cheaply/easily eliminated through diversification Because in a competitive market, investors can largely eliminate unsystematic risk cheaply/easily, and thus, don't demand to be paid for bearing it.
Company X is more exposed to market risk than Company Y. Company X can compensate for this by using less financial leverage. As a consequence, the uncertainty of both firms' anticipated EBITS could be similar. * Correct O Wrong
Which of the following is NOT a way to to reduce revenue portfolio risk? Group of answer choices Revenue diversification Reducing the proportion of a riskier revenue Relying on a single revenue source Increase the proportion of a more stable revenue source
Which of the following statements is TRUE about risk-free investment? a. Return in risk-free investment is high, but the investment manager charges a fee for the guarantee. b. It always provides inconsistent return as consistent return requires higher risk c. It provides lower returns as higher return requires higher risk.
According to Capital Asset Pricing theory (CAPM), in a competitive marketplace: Group of answer choices A. only systematic risk is rewarded. B. only diversifiable risk is rewarded. C. all types of risks are rewarded. D. no risk is rewarded.
Which of the following risks can be eliminated through diversification? a. Systematic risk b. Idiosyncratic risk c. Market risk d. Non-diversifiable risk
Exposure to systematic or market risk can be reduced by? A. adding low or negative beta stocks to the portfolio. B. investing in a variety of economic sectors. C. cannot be reduced or avoided. D. diversifying internationally.
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?