Question

Question: Question:Evaluate the following statement: "Adding a high risk emerging market bond to a portfolio can actually reduce overall portfolio risk."

a)This statement is true because the correlations between emerging and developed market instruments are low, zero or negative.

b)This statement is false because a high risk bond from a high risk market is too much to derive significant benefits.

c)This statement is inconclusive because we don't know if the market is integrated or segmented.

d)The statement is true but under the condition that the high risk emerging bond should only represent a small portion of a long term portfolio.

e)This statement is false because the bond must show evidence of lower risk markets.

Question 2 3 pts Check all answers that are consistent with unsystematic factors that affect Treasury bonds when priced in asegmented market.

a)Domestic economic growth as measured by growth in GDP.

b)Domestic interest rate movements

c)Global risk

d)Global economic growth as measured by growth in GDP.

e)Gobal interest rate movements

f)Domestic country risk

g)T-bonds do not have exposure to unsystematic risk in segmented market only in integrated markets.

Question 3 4 pts The beta of a security's ROPC: (select all true responses)

a)A measure of security return elasticity.

b)A measure of systematic + unsystematic risk.

c)A measure of total risk.

d)measures unsystematic risk.

e)measures the magnitude of the security's response to changes in the market.

f)measures the entire range of possible outcomes over a given period of time.

g)Slope of a least squares regression.

h)A measure of systematic risk.

i)measures the magnitude of the security's response to changes in other securities.

j)measures the volatility.

Question 4 4 pts The standard deviation of a security's ROPC: (select all true responses)

a)measures the magnitude of the security's response to changes in other securities.

b)measures the magnitude of the security's response to changes in the market.

c)measures the entire range of possible outcomes over a given period of time.

d)None of the above. e)Slope of a least squares regression.

f)A measure of systematic risk.

g)A measure of systematic + unsystematic risk.

h)A measure of total risk.

i)A measure of security return elasticity.

j)measures unsystematic risk.

k)measures the volatility.

Question 5 3 pts The appropriate label for the standard deviation is a) __________ and the appropriate label for beta is b) _____ Possible Labels: %, X, DC/FC, FC/DC)

Answer 1

1.

Adding a high risk emerging market bond to a portfolio actually increase the risk of portfolio. So, This statement is false because the bond must show evidence of lower risk markets.

option (E) is correct answer.

2.

Unsystematic factors are those factors that is specific one one country that might affect price of treasury bonds. for treasury bonds unsystematic factors are Domestic economic growth as measured by growth in GDP, Domestic interest rate and country risk.

Option (A), (B) and Option (E) is correct answer.

3.

Beta is a measure of systematic risk that is market risk. A Stock with lower beta means lower market risk and a stock with higher beta means high market risk.So, beta measures the magnitude of the security's response to changes in the market.

Option (E) and (H) are correct answer.

4.

Standard deviation is a measure of standalone riskor unsystematic risk. A lower standard deviation mean lower standalone risk and higher standard deviation mean higher standalone risk. Standard deviation also measures volatility of stock return over period. Standard deviation is also considered as Slope of a least squares regression.

Option (E), (J) and (K) are correct answer.