Question

In: Finance

Which of the following statements is (are) correct?(x)A major economic downturnis a source of systematic riskand...

Which of the following statements is (are) correct?(x)A major economic downturnis a source of systematic riskand the departure of a firm's chief executive officer(CEO) is a source of unsystematic risk.(y)During a recession, systematic risk will increase and unsystematic risk will decrease.(z)Adding more unrelated securities to a portfolio reduces unsystematic risk.

A.(x), (y) and (z

)B.(x) and (y) only

C.(x) and (z) only

D.(y) and (z) only

E.(z) only

Which of the following statements is correct?

A.The dollar return is a more useful measure to compare performance than percentage return because it more accurately reflects the change in wealth of the investor.

B.It is necessarily true that when an investment achieves a high return it is a risky investment

.C.By adding stocks to your portfolio, it is possible toeffectively eliminate nearly all of the market risk.

D.A low standard deviation means that the investment is less likely to achieve high returns; which means that it is more risky.

E.None of these statements are correct

Expert Solution

ans 1 c is correct

Examples of unsystematic risk include things, such as strikes, outcomes of legal proceedings, or natural disasters. This risk is also known as diversifiable risk, since it can be eliminated by sufficiently diversifying a portfolio.

Systematic risk underlies other investment risks, such as industry risk. If an investor has placed too much emphasis on cyber security stocks, for example, it is possible to diversify by investing in a range of stocks in other sectors, such as healthcare and infrastructure. Systematic risk, however, incorporates interest rate changes, inflation, recessions and wars, among other major changes. Shifts in these domains can affect the entire market and cannot be mitigated by changing around positions within a portfolio of public equities.

Ans 2 A NO, % return better than dollor but there are specific sitution where dollor return are more accurate like time disparity, mutually exclusive situation, etc.

B No, risky investment can be calculated by standard deviation. higher rate of return can not be a base of risk.

C No, by adding stock in to the portfolio only upto unsystematic risk can be controlled not the market risk.

D No, low standard deviation means stock having low risk but not means having low return.

jeff jeffy answered 10 months ago

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