Question
In: Finance
If an investor buys enough stocks, he or she can, through diversification, eliminate most of the...
If an investor buys enough stocks, he or she can, through diversification, eliminate most of the market risk and company-specific risk and inherent in owning stocks. (why is false the correct answer?)
True.
False
Solutions
Expert Solution
Answer : False
Explanation : There are generally two types of risk involved when you buys any stock this are termed as systematic risk and unsystematic risk.
Systematicrisk refers to risk of market events or factors which are beyond the control of investors like inflation, currencies fluctuations, movement in interest rates etc. which can't be managed by an individual investor that's why it is termed as undiversifiable risk which means market risk can be controlled or eliminated by diversification whereas unsystematic risk refers to risk of loss within a particular industry or security which can be controlled or managed by diversification of portfolio which Investment in different industries and securities so that in the event of any loss or disruption only particular security gets impact by such happening that why it is called diversifiable risk.
So if an investor buys enough stocks he or she can through diversification can eliminate only company-specific risk and inherent in owning stocks and he cannot eliminate market risk because such risk is beyond its control.
jeff jeffy answered 2 years agoRelated Solutions
In most cases, diversification can reduce or eliminate this type of risk. A. systematic risk. B....
In most cases, diversification can reduce or eliminate this type
of risk.
A. systematic risk.
B. nonsystematic.
C. macro risk
D. all risk.
a) Discuss the benefit of portfolio diversification. Explain how to achieve diversification benefit. An investor buys...
a) Discuss the benefit of portfolio diversification. Explain how
to achieve diversification benefit. An investor buys 1 share of ABC
Ltd at the price of $32 on December 1, 2019. The firm is not
expected to pay any dividends. Consider the following three
possible scenarios for the share price on December 1, 2020: $50
with a probability of 20% $35 with a probability of 65% $23 with a
probability of 15% b) Calculate the expected return for holding the
share...
a) Discuss the benefit of portfolio diversification. Explain how to achieve diversification benefit. An investor buys...
a) Discuss the benefit of portfolio diversification. Explain how
to achieve diversification benefit.
An investor buys 1 share of ABC Ltd at the price of $32 on
December 1, 2019. The firm is not expected to pay any dividends.
Consider the following three possible scenarios for the share price
on December 1, 2020:
$50 with a probability of 20%
$35 with a probability of 65%
$23 with a probability of 15%
b) Calculate the expected return for holding the share...
At a high enough wage rate, the person feels that he or she can afford to...
At a high enough wage rate, the person feels that he or she can
afford to take more leisure time. Comment with examples
An investor is said to take a position in a “collar” if she buys the asset,...
An investor is said to take a position in a “collar” if she buys
the asset, buys an out-of-the-money put option on the asset, and
sells an out-of-the-money call option on the asset. The two options
should have the same time to expiration. Suppose Marie wishes to
purchase a collar on Riggs, Inc., a non-dividend-paying common
stock, with six months until expiration. She would like the put to
have a strike price of $34 and the call to have a...
An investor is said to take a position in a “collar” if she buys the asset,...
An investor is said to take a position in a “collar” if she buys
the asset, buys an out-of-the-money put option on the asset, and
sells an out-of-the-money call option on the asset. The two options
should have the same time to expiration. Suppose Marie wishes to
purchase a collar on Riggs, Inc., a non-dividend-paying common
stock, with six months until expiration. She would like the put to
have a strike price of $34 and the call to have a...
By combining stocks with ______________ in a portfolio, an investor would get big diversification benefits. 1)Negative...
By combining stocks with ______________ in a portfolio,
an investor would get big diversification benefits.
1)Negative covariance of stock returns
2)High standard deviation of returns
3)Positive correlation coefficients of stock returns
4)High beta coefficients
Which of the following is true?
S1: The stand-alone risk of a stock can completely be
diversified away.
S2: According to the Capital Asset Pricing Model (CAPM), the
market risk of a stock is relevant.
1) S1
2) S2
3) Both
4) Neither
What are some of the diversification strategies that an investor can adopt to minimize the investment...
What are some of the diversification strategies that an investor
can adopt to minimize the investment risk in the creation of a
portfolio for optimal risk-return relationship if investing in the
company Microsoft?
An investor has $70,000 to invest in a $290,000 property. He/she can obtain either a $230,000...
An investor has $70,000 to invest in a $290,000
property. He/she can obtain either a $230,000 loan at 8.5% for 20
years (option A) or a $180,000 loan at 9% for 20 years and a second
mortgage for $40,000 at 11% for 15 years. Both loans require
monthly payments and are fully amortizing Based on the analysis
what option should the investor choose, assuming ownership for the
full loan term? O option A O option B explore other options none...
An investor has $70,000 to invest in a $290,000 property. He/she can obtain either a $230,000...
An investor has $70,000 to invest in a $290,000 property. He/she
can obtain either a $230,000 loan at 8.5% for 20 years (option A)
or a $180,000 loan at 9% for 20 years and a second mortgage for
$40,000 at 11% for 15 years. Both loans require monthly payments
and are fully amortizing Based on the analysis what option should
the investor choose, assuming ownership for the full loan term? O
option A O option B explore other options none...
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- Suppose Rialto is the only movie cinema in a small college town, so it is essentially...
- With VMI, members of the supply chain share planning, demand, forecasting, and inventory information.
- Large lots are desirable in supply chain coordination despite increasing holding costs.
- ***Convert the C++ to Python*** #include <iostream> using std::cout; using std::cin; using std::endl; int charClass; char...
- Make-or-Buy Decision Fremont Computer Company has been purchasing carrying cases for its portable computers at a...
- The following costs were incurred for the single product produced during the first year of operations...
- Non-constant growth model: Do=$2.00 required return on equity= 5% g= 9% n=1,2 g=7% n=3,4 g=3% n=5...
ADVERTISEMENT